FX restriction to Food and Fertilizer: Yea or Nay?

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FX restriction to Food and Fertilizer: Yea or Nay?

Recently, President Buhari directed the CBN to restrict FX sales for food items and fertilizer importation citing that the Federal Government, through its proactive policies, has been able to avert the looming food crisis in the wake of the coronavirus crisis, which disrupted the agriculture value chain as well as the global economy.

This decision has generated two major views across the country, while some believe that the ban is necessary for a bid to protect and boost local production of food items, others have highlighted the violation of the Apex Bank’s independence.

In our view, the recent announcement is simply an extension of the policy that has resulted in the inclusion of several items in the long list of transactions not eligible for foreign currency sales in Nigeria since 2016.

For us, we think that the protectionist argument for the decision should be critically assessed in the context of supply shortfalls, direct impact on food prices, with food inflation at 16.0% as at August 2020, and the level of strategic food reserves. For instance, over the last 12 months, the prices of staples such as Rice (+33.0%), Yam Tuber (+50.1%), Tomatoes (+49.4%), Yellow Garri (+65.5%) and White Garri (+46.6%), has skyrocketed significantly according to NBS’s data.

Earlier, the CBN had ban FX sale for the importation of Maize (+40%), only for the government to resort to its strategic reserves due to supply shortfall. Clearly, food prices may further rise once the impact of the above kicks-in.

Moving on, we fear that barring FX sales for food items, though positive for local production, may weaken overall welfare of the populace due to its immediate term price impact, which alongside a recent hike in fuel and electricity prices, will worsen the purchasing power of workers’ salary, lower aggregate demand, and deepen recessionary tendency due to the pandemic.

For the good intension of the government to work, Food production must be accelerated over the short to medium term, to ensure equilibrium is restored fast enough.

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