AFEX: Naira depreciation, demand-supply gap may drive up food prices in 2022

AFEX, one of Nigeria’s commodity players, has projected that food prices will continue to skyrocket in 2022.

The company said this on Wednesday at the launch of its report titled ‘Annual Commodities Review & 2022 Outlook’.

The report projected that the combination of rising inflationary pressure as Nigeria approaches the end of petrol subsidy, a possible naira devaluation in the parallel market, and increased demand pressure on commodities in the country would increase the price of grains during the new 2021/2022 trading season.

It added that 2022 being a pre-election year may serve as a significant factor in exacerbating price pressures.

Speaking at the event, Oluwafunto Olasemo, AFEX’s vice president, financial markets, explained that the company’s annual outlook provides some perspective on how the commodities market performed in the previous year and how commodities may perform in the new year.

“The report’s primary objective is to close a data gap in Africa’s commodity sector and to give solid market intelligence to major stakeholders in the commodities value chain,” Olasemo said.

Reviewing the previous year, the report said that after the COVID-19-induced lockdowns were lifted in 2021, the Nigerian agriculture sector expanded by an average of 1.60 percent in the first three quarters of the year.

The report said that although the 2021 expansion was lower than the 1.72 percent recorded in 2020, it depicted some resilience compared to other significant sectors such as industry and services.

According to the report, agriculture contributed an average of 25.35 percent to Nigeria’s GDP in 2021.

During the same period, the report said Nigeria’s overall agriculture import cost was N3.78 trillion with a trade imbalance of N1.99 trillion, making Nigeria still a net food importer.

Providing an outlook, AFEX predicted a minimal effect of the new Omicron variant of COVID-19 on Nigeria’s supply chain for commodities.

“However, prices across commodities started the current season at a higher minimum base price than the previous season, owing to increased demand that has surpassed supply levels,” the report reads.

“We believe other upside risks to domestic commodity prices this year are insecurity, FX rate deterioration, government policies, etc.

“Also, the inability to close the demand gap by increasing harvest from dry season farming is a potential risk to pressured prices in 2022.”

The AFEX report recommended better access to financial services and the provision of technology infrastructure to improve the productivity of Nigerian farmers.

It added that the African Continental Free Trade Area (AfCFTA) could play an important role in facilitating intra-regional trade in agri-food products, thereby stabilising food prices and improving food security.