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November 24, 2020
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Can closed borders solve food security?

The coronavirus has become the number one priority for all governments. In Nigeria, the COVID-19 Presidential Task Force is getting more face time with the President than any other ministry or minister could get before the pandemic.

Despite being a health issue, the impact has been felt across all spheres. One area is on food. Specifically, its availability and price.

Even before lockdowns were implemented, the anticipation led to panic buying and price increases. We all heard about the hand sanitiser prices, but essential food items like garri, rice, and tomatoes increased by as high as 120% across major markets in different states.

In Nigeria, 31% of households suffer from food shortages, mostly due to high prices. So these increases put many at risk.

As food prices become pressured by lockdowns, countries have started taking precautionary steps. Some governments are now restricting exports to retain enough supplies for their population. This can put additional pressure on food prices if these impositions lead to scarcities in importing countries.

Nigeria could be vulnerable – we depend on food importation to meet our demand. According to KPMG, Nigeria imported about 3 million tonnes of rice, which was almost 50% of our demand.

“We currently have some difficulty getting wheat bran – a byproduct of wheat,” says Ope Agbato, Director at Animal care Services, one of the largest poultry companies in Nigeria.

Ope explains the byproduct is usually bought from local flour manufacturing companies who import it because it doesn’t grow well in Nigeria.

Nigeria’s food security problem

What the story above highlights is a food security problem. One that Nigeria has been grappling with even before the pandemic arrived.

According to the United States Department of Agriculture (USDA), Nigeria had over 50% of West Africa’s food insecure population last year.

1 in 5 Nigerians are food insecure.

The USDA defined food insecurity as the percentage of the population unable to reach a target of 2,100 calories.

Many factors can lead to this, but it boils down to not being able to afford enough food for a healthy life. As economists will tell you, that affordability depends on how much food is available at the market and the prices at which they are set.

Buhari’s border closure

At the heart of the problem is Nigeria’s inability to produce what it needs. Local production does not meet demand. But it doesn’t have to entirely – no country produces exactly what it consumes.

However, Nigeria is exposed to higher food prices whenever there is an external negative shock that impacts our exchange rate. Mainly, anytime oil prices fall, not only does the central bank groan, the population feels the impact through more expensive imported food.

Similarly, today’s pandemic has shown again how exposed our food supply can be to economic shocks.

Well, this is why Buhari’s agenda has always been to boost local agricultural production. The central bank has also made this a priority with regards to tackling inflation.

For the apex bank, if we make more of our own food (or toothpicks), then exchange rate moves will have a smaller impact on inflation. According to a National Bureau of Statistics survey, food price inflation is the most prevalent negative shock for Nigerians.

So both the Federal Government and CBN have tried a string of policies to boost local agriculture production. Ranging from the farmers Anchor Borrower’s Programme (ABP) to providing fertilisers.

Remember when Buhari even asked youths to become farmers?

The latest major policy was closing the land borders which happened back in August 2019. This sparked a lot of controversy as the border closure brought about hardship across all income groups. From chicken scarcity at fast-food restaurants to price increases in staple items like rice.

However, Buhari’s focus was to get rid of smuggling and foreign competition which have made it difficult for local industries to thrive.

The border closure, a protectionist measure, is not far off from how other countries have grown their domestic sectors in the past. Despite the initial pain it caused consumers.


Protectionism: Fighting for the small Industries

The idea behind protectionist policies is to shield local producers from superior competition from larger and often more preferred producers abroad. These products can enter the country legally (paying tariffs where relevant) or smuggled illegally (tariff-free).

Foreign goods make it difficult for the local producers to gain any market share – foreign competition ensures that they remain small.

The most well-known form of protectionism is using tariffs, which are taxes imposed on foreign goods. For instance, in 2013, Nigeria imposed a tariff of 70% on imported rice, which explains why the average cost of imported rice is about 30% more expensive than local rice. But the measure is supposed to give local rice a larger market share

Another way this happens is through subsidies. Where the government uses techniques, like grants, to give domestic producers an advantage over foreigners.

Developed nations are known for using subsidies, particularly in the agriculture sector. The UK government plans to spend at least £3 billion in agricultural subsidies this year 2020.

Foreign subsidies on agricultural produce can put domestic sectors at a disadvantage.

Thailand subsidises its rice production, allowing it to produce and sell at a quality and price at which local Nigerian producers struggle to compete with.

A win and a loss

Given this is the game being played, Nigeria’s decision to close the border was seen as a step towards evening out the playing field for local producers. Be it via a presidential decree or as a result of covid-19, closed borders can give domestic industries breathing space to grow.

China has used protectionist measures as a growth strategy for many decades.

But this path to growth means that while producers win, consumers lose in the short term.

According to Fuad Ogunsanya, a Director at Amazon Farms. “There was a huge chicken scarcity, it meant that those who were already producing chicken didn’t need to even increase their prices,” he says. “The fact that it was in shortage meant that the price was already increased, so it was just to ramp up production.”

“Covid is a mixed blessing for Nigerian farmers and Nigerian agriculture,” says Ndidi Nwuneli, Managing Partner at Sahel Consulting in an interview with CNBC Africa. “With other countries closing their borders, it means that there is less dumping of food in Nigeria.”

A clearer disadvantage is that the lack of competition the protection creates can make local producers complacent with the quality and costs of producing their goods.

Canadian dairy producers are known to be inefficient and hide behind protectionist policies which restrict foreign dairy imports.

This is why, in theory at least, protectionist policies are not meant to be long term. Both the government and producers are supposed to understand that the foreign competition will be allowed in the medium term. So efficiency must be kept at a high standard.




It’s more than border closures

Let’s not get carried away, though. Shutting borders and subsidising farmers won’t directly stop tomatoes from falling on Benin-Ore expressway due to bad roads.

Protecting local industries through closed borders or subsidies is not a panacea for improving food security. Not only is how you use the policies important – i.e. using high tariffs or closing borders altogether – but addressing structural problems is essential.

The government opted to close borders instead of raising tariffs. The difficult terrain and corruption at borders meant that even goods that were supposed to face high tariffs still entered the country.

Still, closing the border on its own doesn’t solve the fundamental problem of corruption at land borders. Even after the borders were closed, goods were still going through after paying bribes.

Then you have Nigeria’s infrastructure gap. Electricity, transport, farm equipment.

If the structural issues are not dealt with, then closed borders or high tariffs will continue to harm consumers without the benefit of growing local producers.

If the objective is food security, the main problem with extreme protectionist policies – like closing the border – is the significant shock of lower food availability and higher prices. That worsens the problem in the short run.

But as discussed, exchange rate moves are risky for pricing imported food. Prices are also affected by export restrictions when suppliers decide to close their borders in times of crisis.

These risks, coupled with the fact that our local producers are trying to compete against subsidised foreign companies, warrants some form of protection to help our industries grow.

That should come with a set of articulate policy measures – removing structural roadblocks and some form of protectionism. Not just for Nigerian producers but vulnerable consumers as well.

Stears Business

You can follow this writer (@GbemiAlonge)

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