Abdulmalik Lawal Adetola: 1. Can you explain the relationship between inflation and food security in Nigeria, and how monetary policy influences this connection?

Ikechi Agbuba: It is no longer news that food product prices in Nigeria increased by approximately 31 per cent in September 2023. As a matter of fact, food inflation in Nigeria is projected to be 33 per cent by the end of next quarter, according to expert projections and expectations from global macro models. Truly, the figures are worrying. No doubt, the impact of inflation is noticed in almost every activity across the food value chain. The overall impact on the agriculture sector will definitely transcend from the increase in the cost of production to the reduction in purchasing power. Thus, further increasing food prices and drastically reducing the standard of living.

However, Nigeria’s National Bureau of Statistics has countered that the rise in food inflation was caused by increases in the price of yam and other tubers, fish and meat, oil and fat, bread and cereals, potatoes, vegetables, milk, cheese and eggs. This implies that the production possibility curve for food will bring about excess supply over demand. Since food is an essential and major commodity, among other life priority needs, there is no alternative significance resulting in an increase in the percentage of family or household income spent on food. Indeed, the high inflation rate will result in an increase in the interest rate which will affect farmers in accessing credit from banks, as a result of high interest rates.

This is a clear indication that the price of food items is what is driving the high inflation rate in Nigeria
In other words, it can be said that it is time to increase the production of food and any other related or derived agricultural resource because any investment in agriculture will result in high returns. Accessing funds from banks to increase production may not necessarily lead to profitability, since the funds will lead to high costs. This is a clear indication that the price of food items is what is driving the high inflation rate in Nigeria.

2. How has the devaluation of Nigeria's currency impacted the cost of food and its availability in the country? What are the key factors contributing to this?
Subsidy removal and naira devaluation pushed food inflation to approximately 31 per cent last September, worsening inflationary pressures in the country. Truly, prices of food resulted in the Consumer Price Index surging to 27 per cent in September, as indicated by the NBS. The effect of devaluation on Nigeria’s economy makes the country's exports relatively less expensive for foreigners. At this point, importation of food and agro products is discouraged because devaluation results in making foreign products relatively more expensive compared to domestic consumers.

The federal government of Nigeria identified food and nutritional insecurity, as well as climate change issues as major variables that lower incomes and increase food prices in the country. It says that these challenges have put food out of the reach of many Nigerians.

Devaluing the Naira is an economic policy and I must underscore that devaluation makes a currency weaker compared to other currencies, which would boost exports, close the gap on trade deficits, and shrink the cost of interest payments on government debt. The sharp devaluation was caused by the Central Bank of Nigeria's decision to allow the naira to fluctuate freely, letting market forces determine the exchange rate. The Central Bank also implemented several reforms, including scrapping the segmentation of its foreign exchange market.

I must also note that Nigeria's major agro imports include wheat, sugar, fish and milk, while the main agro exports include sesame seeds, cashew nuts, cocoa beans, ginger, frozen shrimp and cotton.

3. What role does the government play in addressing the challenges related to food security, inflation, and monetary policy? Are there any recent policy initiatives aimed at tackling these issues?
Sadly, we are at the crossroads of one of the greatest challenges of our time: How do we end hunger? Globally, we have about 828 million hungry persons, including 349 million persons facing severe hunger. While this is the largest global food crisis in modern history, we have solutions for a zero-hunger world.

Coming back to Nigeria, how can the government address food security issues, inflation and monetary policy? Firstly, I must suggest a few points that revolve around revisiting the initial policies formulated by the Nigerian government on agriculture, especially the recent administration. There will be a need to conduct a SWOT analysis as well.

It is time for the government to take proactive actions in fighting hunger by enforcing policies of the World Food Programme - by advocating to end traces of hunger in the 6 geopolitical zones. The regional blocs must work together because state governments can partner to build formidable food and agricultural hubs.

I can admit that the home garden culture has great potential in addressing food and nutritional insecurity issues
What has happened to our home garden culture? While growing up at the University of Nigeria, Nsukka Campus, we had a home garden which served us and our neighbours. We rarely patronized vegetable sellers in the marketplace. As a matter of fact, our garden was managed by me and I never understood what food security was at the time. I can admit that the home garden culture has great potential in addressing food and nutritional insecurity issues. The government can also assist households and families with this in a variety of ways.

Regarding the government’s role in addressing high food prices and inflation, I suggest the moderation of food price increases through export limitations, reduced import tariffs, as well as the removal of value-added tax on food. Secondly, compensating select groups of consumers for increasing food prices through targeted transfers, consumer food allowance or bonuses and increased public sector wages.

Regarding monetary policy, which primarily involves changing interest rates to control inflation, the government can assist in fighting inflation through fiscal policy. Government can reduce spending and increase taxes, as a way to help in reducing inflation. With a 2-3% inflation target, when prices in an economy digress, the CBN can validate monetary policy in order to restore that target. If inflation heats up, raising interest rates or limiting the money supply are both contractionary monetary policies drafted to lower inflation.

It is in principle that the primary policy for reducing inflation is monetary policy. As a matter of fact, raising interest rates reduces demand thereby helping to control inflation. Other programmes to reduce inflation can include higher taxes (tight fiscal policy), supply-side policies, wage control, valuing in the exchange rate and control of the money supply.

4. How can a well-balanced monetary policy framework contribute to stabilizing food prices and ensuring food security in Nigeria, particularly in the face of inflationary pressures?
The basic approach is simply to change the size of the money supply. This is usually done through open-market operations, in which short-term government debt is exchanged with the private sector. The primary factors contributing to global food insecurity are nothing more than poverty, environmental degradation, conflict, and climate change. Food insecurity leads to worse health outcomes and worsens poverty.

As an academic and researcher, I must say that CBN will utilize monetary policy to manage economic fluctuations to achieve price stability in Nigeria, which implies that inflation will be low and stable for food prices thereby leading to improvements in the food security status because many families and persons can afford safe and nutritious food. Indeed, the CBN sets explicit inflation targets. Hence, there will be an improvement in the level of food security since monetary policy primarily entails swapping interest rates to control inflation. Therefore, through fiscal policy, the government can assist in fighting inflation in Nigeria. This implies that the role of the government is significant in reducing spending and inflating taxes, as a way to minimize inflation.

Devaluation typically leads to an increase in the prices of imported goods and services. Since Nigeria heavily relies on imports for many essential items, such as food, fuel, and machinery, a weaker Naira can result in higher prices for these goods
5. Are there specific sectors or industries that are particularly vulnerable to the effects of inflation and currency devaluation in Nigeria, and how do these vulnerabilities affect food security for the population?
The factors affecting inflation in Nigeria include increments in salaries, the structure of production, climatic conditions, as well as currency devaluation and changes in terms of trade. Devaluation typically leads to an increase in the prices of imported goods and services. Since Nigeria heavily relies on imports for many essential items, such as food, fuel, and machinery, a weaker Naira can result in higher prices for these goods.

Inflation affects every other sector and industry in many ways. For instance, in the real estate space, I can say that Naira depreciation has impacted the cost of borrowing to finance real estate projects and the interest rate, which is about 30 percent. The ripple effect is further seen in the cost of labour deployed in housing production as the majority already adjusted wages. While manufacturing plays a crucial role in Nigeria's economy, contributing about 10% to the total GDP annually, the sector faces numerous challenges. These obstacles include issues with power supply and diesel costs, excessive taxes from various government agencies, and inadequate physical infrastructure.

More so, in the construction industry, inflation and currency devaluation have led to delays in project starts or even project cancellations, hindering economic development and infrastructure improvement efforts. The impact of inflation on construction in Nigeria is multifaceted, with repercussions extending to labour costs, budget stability, and project planning.

For the agriculture sector, the agriculture sector contributed about 24 per cent to nominal GDP in the fourth quarter of 2021. This figure was lower than the rate recorded in the fourth quarter of 2020 and lower than the third quarter of 2021 which recorded about 24 per cent and 26 per cent, respectively. A unit change in the inflation rate leads to a 2.5 per cent reduction in the poverty level in the country. However, agricultural production and poverty level have a significant inverse relationship with each other. A unit change in agricultural output reduces the poverty level by 1.7 per cent in the country.

Dr Ikechi Agbugba is a Senior Lecturer, at the Department of Agric & Applied Economics, Rivers State University, Port Harcourt City, Nigeria; and a Visiting Professor, at Rome Business School.

This interview by Abdulmalik Lawal Adetola was also published on the Avalon Daily on the page Beyond the News.