To address the increasing food inflation, President Bola Ahmed Tinubu has proposed a National Commodity Board. A commodity board is not a novel idea, but it is a poor choice of weapon against the soaring prices of food in Nigeria.
In Nigeria, food inflation is a problem that won’t go away. With 90% of the working population spending 60% of their income on food and related expenses, it’s been clear for a while that urgent action is needed. Recent numbers from the National Bureau of Statistics show that food prices are the biggest driver of Nigeria’s inflation figures. It has compelled the nation’s president President Bola Tinubu to declare an emergency in the country’s food sector. President Tinubu’s plan to reduce food prices has several prongs, one of which is the establishment of commodity boards.
Commodity boards are not new in Nigeria. The country has set up boards for cash crops like palm produce, cotton, groundnut and even grains. Most of these boards were created to boost and regulate exports. Yet, they have often caused market distortions and incentivised corruption until they were eventually dissolved. Tinubu’s commodity board is supposed to rein in inflation, but there is nothing to suggest that it will be any different from the ones before it.
The National Commodity Board may cause market distortion
“In the past, the commodity board improved the rural economy and brought more revenue to the farmers, but it created a toxic imbalance in the market. Another board of that sort will do the same,” Tade*, a policy expert, said to TechCabal. Tinubu’s proposed commodity board aims to control the cost of food items and fix them at a price that will profit the farmer and still be affordable for the Nigerian consumer who is currently battling inflation. To ensure this, the board establishes a price floor, which is a minimum price at which the crop will be bought from farmers. In the past, the boards also directly buy the produce at the pre-determined price from the farmers on a regular basis.
The problem is that many times this fixed price is divorced from the market reality, and in such cases, people will inevitably cut corners and create market distortion. A clear example is how the government inadvertently created a black market for dollars when it artificially pegged the rates below the real market reality. The same thing happened in the 1960s when groundnut producers resorted to selling their produce directly to foreign buyers willing to pay higher prices, bypassing the Northern Nigeria Marketing Board’s established price floor. “Market distortions can occur when the board’s fixed prices fail to adequately reflect supply and demand forces,” Tade pointed out. This creates disparities within the market and completely undermines the board’s intended price stability.
The National Commodity Board will be another fiscal burden
The implementation of a commodity board can also place a significant fiscal burden on the country. Considering the macroeconomic environment of the country, the fixed price of produce may be unaffordable to the majority of the population. Under these circumstances, the board would naturally create a subsidy for the produce, and sell them to the public at artificially lower prices than what it initially bought from the farmers. But Nigeria is not in a fiscal position to provide subsidies. Tade expressed concerns about and believes that any sort of food subsidy will nullify the fiscal gains of the recent fuel subsidy removal.
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Additionally, the board itself requires funding for essential infrastructure needed to store the produce and distribute it. It also needs to fund the several organisations that will be contributing to the board’s functions. These organizations may include the National Commodity Exchange (NCX), Seed Companies, National Seed Council, Research Institutes, NIRSAL Microfinance Bank, and Food Processing/Agricultural Processing associations. Each entity on the board may require financial resources for its operations, research activities, market infrastructure, and other essential functions.
The allocation of funds to support the board’s activities can strain the government’s budget, especially considering other pressing socio-economic priorities.
Corruption and inefficiencies
Making this board a middleman between producers and consumers creates room for more corruption. There is nothing that shows that the new proposed board will be corruption-proof, and the last thing Nigeria needs is another leaking purse. In addition, other inefficiencies associated with government agencies such as delayed payments, and nepotism, can adversely affect the lives of farmers, and discourage private sector participation and innovation.
Duplication of existing structures
The Commodities Exchange is listed as one of the organisations that is going to be a part of the proposed board but they have very similar functions. Mr Akin Akeredolu-Ale, managing director and chief executive officer of the Lagos Commodities and Futures Exchange said, “Reintroducing Commodity Boards back into the ecosystem will see duplication of functions. The existing structure required by the Commodity boards is already being implemented by the Commodities Exchanges.”
Following the ban by the Federal Government on the direct purchase of farm produce by foreigners from farmers, producers have commodity exchanges to sell their goods at competitive prices. Would it not be better for the government to strengthen the infrastructure, expand market linkages, and improve the services offered by commodity exchanges?
Tade thinks there are a plethora of other means the government can lower the prices of food. “For example, reducing the import duties on produce like wheat can significantly reduce the cost of food items like pasta and bread,” he said.
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Copyright for syndicated content belongs to the linked Source : TechCabal – https://techcabal.com/2023/07/18/nigerias-answer-to-food-inflation-is-a-commodity-board-heres-why-it-wont-work/
