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Cablegate: Nigeria: Rising Food Prices yet No Shortages

VZCZCXRO6464
PP RUEHMA RUEHPA
DE RUEHUJA #0817/01 1271444
ZNR UUUUU ZZH
P 061444Z MAY 08
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC PRIORITY 2756
INFO RUEHZK/ECOWAS COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHDC

UNCLAS SECTION 01 OF 03 ABUJA 000817

SIPDIS

DEPARTMENT FOR EE/TPP/ABT/ATP SPECK
TREASURY FOR PETERS AND HALL
DOC FOR 3317/ITA/OA/KBURRESS, 3130/USFC/OIO/ANESA/DHARRIS
USDA/FAS FOR ASIF CHAUDHRY, DOROTHY ADAMS

E.O. 12958: N/A
TAGS: ECON EAGR EAID ETRD PREL NI
SUBJECT: NIGERIA: RISING FOOD PRICES YET NO SHORTAGES

REF: A. ABUJA 760
B. STATE 39410
C. 07 LAGOS 664

1. Summary. Rising food and agricultural commodity prices are
having a significant impact in Nigeria. Since late 2007, basic food
prices have risen sharply. The Ministry of Agriculture calculates
that 71% of Nigerians are underfed and the World Bank estimates that
54% of the population earns less than $1 a day. With prices for
staples such as rice, maize and millet doubling since December, a
large number of families have resorted to selling assets (cows,
goats, chickens, household goods) to purchase food. The problem is
not only limited to price increases, as local food supplies have
also shrunk due to insufficient production, which has declined due
to limited supply and the high cost of fertilizer. Compounding the
situation are trade policies that ban and/or impose high import
tariffs on agricultural products. Following an emergency meeting on
April 29, the Government of Nigeria (GON) announced it will release
80 billion naira (N) ($684 million) from the Natural Resources
Development Fund (NRDF) for the importation of 500,000 metric tons
(mt) of rice from Thailand. Moreover the GON will release 11,000 mt
of grains from the National Strategic Grain Reserve and increase
fertilizer supplies; however, the GON has limited additional grain
surplus to make a noticeable impact on the market. End Summary.

2. Basic food products consumed in Nigeria are rice, bread, grains
(maize, sorghum, and millet), and tubers (yam and cassava). The
majority of rice is imported from Thailand and India, and the wheat
used in most domestic flour mills is imported from the United
States. There has been a sustained increase in the demand for
grains by breweries, feed mills, and food processors. A random
sampling of prices at local markets found the following:
-- 50 kilogram (kg) bag of caprice rice in Dec 2007 was N6,500 ($55)
- April 2008 was N11,500 ($98).
-- 50 kg bag of Indian rice in Dec 2007 was N5,000 ($43) - April
2008 was N10,000 ($85).
-- 100 kg bag of maize (corn) in Dec 2007 was N3,000 ($26) - April
2008 was N8,500 ($73).
-- 100 kg bag of sorghum in Dec 2007 was N3,500 ($30) - April 2008
was N8,600 ($73.5).
-- 100 kg bag of millet in Dec 2007 was N4,500 ($38) - April 2008
was N6,000 ($51).

3. Agriculture experts contend that current price increases are due
to:
-- Product hoarding by traders resulting in market shortages.
-- Global increases in food prices and freight rates.
-- Supply shortfalls from 2007 early rainfall cessation in northern
Nigeria.
-- Dependence on subsistence rain-fed farming.
-- High protective import duties and bans.
-- Unavailability of required farm inputs such as improved
seedlings, tractors, and fertilizer.
Experts lament that some of these problems have continued to plague
the agriculture sector under successive Nigerian governments because
of policy inconsistencies and minimal funding.

4. Staple food prices in Nigeria are similar to what they were
during the Niger food crisis in 2005 when the World Food Program had
to intervene. The USAID funded Famine Early Warning System Network
(FEWSNET) forecasts Nigeria's food security for May to September as
follows:
-- Much of the middle belt generally food secure.
-- Other sections of Nigeria will be moderately food insecure.
-- Areas near and including Jigawa state will be highly food
insecure.
COMMENT: If a food crisis strikes Nigeria, malnourishment will hit
pregnant women and children the hardest. So far, organized protests
in response to rising food prices have not taken place; however
continued price hikes cannot be absorbed by the majority of
Nigerians and discontent will certainly increase. On May 2 Kano
city police stopped a planned rally and prayer session organized by
an anonymous group protesting soaring food prices. END COMMENT.
.
Broken Rice Bowl
----------------
.
5. In April Agriculture Minister Dr. Sayyadi Abba Ruma reported to
the media that the country consumes 4.8 million mt of rice per
annum. Domestic production is only 3.1 million mt per annum, from
2.3 million hectares equaling 2.2 mt of rice per hectare. It is
estimated that Nigeria spent $267 million to meet the shortfall.
Despite the 109% duty, large scale imports continue, with the
majority smuggled from neighboring countries such as Benin. Data

ABUJA 00000817 002 OF 003


from the U.S. Foreign Agriculture Service for 2007 show export
figures that Thailand shipped three times as much rice to Benin
(population 8 million) as Nigeria (population 140 million). It is
expected the rice price will continue to increase because of supply
shortages from Thailand and India - major Nigerian sources.
.
Bread Basket Shrinking
----------------------
.
6. The high international price for wheat is taking a huge toll on
domestic flour and bread prices. (NOTE: U.S. market share of wheat
imports is 85%. END NOTE). The average price of a family size
bread loaf has increased since December from N120 ($1.03) to N180
($1.54) while the size of a loaf has decreased. In local markets
biscuit prices jumped from N5 (4 cents) to N7 (6 cents) - a 40
percent increase.
.
Corn Shortage = Poultry Problems
--------------------------------
.
7. The 2008 average price for a ton of maize is N60,000 ($513)
compared to N20,000 ($171) in 2007 - up 200%. Moreover, stockpiles
have fallen below the normal levels required to sustain families
until the next planting season, which began in March and runs
through May. Prices for other cereals have also increased.

8. Insufficient corn supply for animal feed and its high price has
adversely affected the poultry industry. Demand for eggs has
dropped as prices have risen. This shortage is bad timing for the
poultry industry because it has yet to recover from losses resulting
from avian influenza last year. Declining demand has caused some
poultry businesses to close with the attendant issue of increased
unemployment in the sector. There has been some public pressure to
lift the GON ban on imported corn. (COMMENT: Despite insufficient
feed corn supplies, the GON bans corn imports, ostensibly to support
growers. However, the ban on corn imports supports middlemen who
buy corn from resource-poor farmers during harvest when prices are
low and speculate for high returns during the off-season. Informal
estimates suggest that cross-border exports to Niger, Chad and Sudan
are 100,000 mt per annum. END COMMENT).
.
Pirates Sink Fish Production
----------------------------
.
9. According to Foluke Areola, President of the Fisheries
Association of Nigeria, attacks on fishermen by pirates are a major
problem (reftel C). There has been an increase in attacks on
fishing vessels from pirates and even the Nigerian Navy has
allegedly killed fishermen it mistakenly considered pirates.
Trawler owners have limited fishing forays in early 2008 to protest
the incessant attacks and concomitantly, fish prices have increased.

.
On Top of High Prices -- Farmers Face Other Hurdles
---------------------------------------
.
10. Farmers are not receiving the assistance necessary to improve
yields. In April Agriculture Minister Ruma reported to the press
that there are only 30,000 operational tractors in Nigeria - a
density of 0.2 tractors per hectare serving 14 million farming
families. Others estimate as few as 15,000 working tractors,
compared to 4 million in India. (NOTE: The ministry has recently
announced a N400 billion ($3.4 billion) fund to purchase tractors
and other farm equipment over the next four years. END NOTE.)

11. In the past, GON policies provided skilled farm trainers to
teach new farming techniques; however, this program was transferred
to the states and has ceased to function. Not enough farmers have
access to improved seedlings, and most farmers rely solely on rain
and fertilizer. The primary domestic fertilizer producer, National
Fertilizer Company, has ceased operations since privatization.
Fertilizer production at the plant will not commence again until the
third quarter of 2008 - too late for the current planting season.
As a result, farmers are forced to buy high-priced imported
fertilizer or have none. Even if a farmer produces a bountiful
harvest, he is unlikely to have access to adequate storage
facilities. Without storage facilities farmers are vulnerable to
both price and seasonal fluctuations. None of these hurdles are
new; however, the GON has consistently failed to address them, and
the recent food shortages exacerbate these issues.
.
Government Response Limited
---------------------------
.

ABUJA 00000817 003 OF 003


12. On April 16, 2008, Minister Ruma was summoned to the House of
Representatives to explain the Ministry's short and long term plans
to reduce food prices. Members of the House made a motion to ask
the administration to submit a supplementary appropriation bill in
order to grant subsidies to farmers and import more food items.
Additionally, the house discussed waiving duties on essential foods
to encourage their importation.

13. Following an emergency meeting held on April 29 by President
Yar'Adua, with 36 state governors, and relevant ministries, the GON
announced it will release N80 billion ($684 million) from the
Natural Resources Development Fund (NRDF) for the importation of
500,000 mt of rice from Thailand. Moreover, the GON will supply
11,000 mt of grains from the National Strategic Grain Reserve
(NSGR). Earlier this year the GON released 6,500 tons of grains
from the NSGR in a bid to force down prices, but the move had no
noticeable impact. Also, the GON will subsidize N16 billion ($137
million) of fertilizer; however, the amount is not adequate to
positively improve the 2008 growing season and it will become
available only after the planting season. The Minister of Commerce
and Industry, Charles Ugwu, recently announced that a Ministerial
Committee was created by President Yar'Adua to deal with high food
prices.

14. To increase rice production, in April Minister Ruma reported
plans to provide land for large scale farming through contract
farming and cooperatives, adjusting import duties, expanding rice
processing, and establishing agricultural processing centers. In
addition, the Minister of State for Agriculture and Water Resources
Ademola Seriki recently announced that the GON was ready to invest
one trillion naira ($8.55 billion) in the agricultural sector.
(Comment: There have been promises in the past, but the funds have
never been allocated. End Comment.) Seriki said agriculture was a
major component of the administration's seven-point agenda.
According to him, this was the first time large sums would be plowed
into the sector via Public Private Partnership (PPP) platforms.

15. Comment: Prices have soared in Nigeria, and although there have
not yet been major shortages, the price for staple grains is out of
the reach for most of Nigeria's poor (a majority of the population).
Before price increases, poor Nigerian families were already unable
to purchase enough food. This year families are resorting to
selling assets (cows, goats, chickens household goods) to purchase
food. Given the high cost and short supply of fertilizer, combined
with an inability to leverage loans, experts predict that fewer
crops will be planted this season, further aggravating the supply
problem this year and next. The present situation needs to be
closely monitored and adequate measures must be taken by the GON to
prevent a crisis.

16. Comment continued: the GON has limited additional grain surplus
to make a noticeable impact on the market and historically
international agencies have not been able to establish timely
emergency food response mechanisms in Nigeria. It is not yet clear
whether this government will seriously plug in the resources
necessary to avert short and long term problems. Bumper yam and
cassava harvests in 2007 have provided a temporary safety net for
Nigeria's populace. A partial solution can be reached by reducing
import duties and removing bans. We have been told by GON trade
officials that new trade policies could be implemented as part of
the USG-Nigerian Trade Investment Framework Agreement (TIFA) action
plan, which has positive signs of moving forward since our last TIFA
discussions on April 10, 2008. End Comment.

SANDERS

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