How Russia-Ukraine war, dollar’s steep rise over naira impact bread prices in Nigeria

0
27

How Russia-Ukraine war, dollar’s steep rise over naira impact bread prices in Nigeria

Russia’s invasion on 24 February 2022 of Ukraine, a key member of the defunct Union of Soviet Socialist Republics (USSR) just as the former itself, could be seen as another phase and escalation of the Russo-Ukrainian War that began in 2014. The invasion caused Europe’s largest refugee crisis since World War II, with more than 9.9 million Ukrainians fleeing the country and a third of the population displaced.

The invasion began on the morning of 24 February, when Putin announced a “special military operation” to “demilitarise and denazify” Ukraine. Minutes later, missiles and airstrikes hit across Ukraine, including the capital Kyiv. A large ground invasion followed from multiple directions.

The invasion received widespread international condemnation with the United Nations General Assembly demanding a full withdrawal of Russian forces. The International Court of Justice ordered Russia to suspend military operations and the Council of Europe expelled Russia. Many countries imposed sanctions on Russia, which have affected the economies of Russia and the world, and provided humanitarian and military aid to Ukraine.

How the war is affecting the price of bread

The Russian Federation and Ukraine are among the most important producers of agricultural commodities in the world. In the cereal sector, their contribution to global production is especially significant for barley, wheat and maize.

The two countries together on average accounted for 18 per cent of the global output of those crops between 2016/17 and 2020/21, with the Russian Federation accounting for 14 per cent and Ukraine 4 per cent.

The Russian Federation and Ukraine are key suppliers to many countries that are highly dependent on imported foodstuffs and fertilizers. Several of these countries fall into the Least Developed Country (LDC) group, while many others belong to the group of Low-Income Food-Deficit Countries (LIFDCs).

Many countries in North Africa and Western and Central Asia import the majority of their wheat from the Russian Federation and Ukraine. Overall, more than 30 net importers of wheat are dependent on the two countries for over 30 per cent of their wheat import needs.

Wheat is a cereal grain which is a worldwide staple food. Wheat which is grown on more land area than any other food crop is the second most-produced cereal after maize as of the year 2020.

Wheat is a major ingredient in foods such as bread, porridge, crackers, biscuits, muesli, pancakes, pasta and noodles, pies, pastries, pizza, semolina, cakes, cookies, muffins, rolls, doughnuts, gravy, beer, vodka, boza (a fermented beverage), and breakfast cereals.

According to the trade data provided by the Observatory of Economic Complexity (OEC), Nigeria sources 4.8 per cent of its wheat imports from Russia.

The top origins of wheat in Nigeria in 2021 included the USA, N194.2 billion; Canada, N136.4 billion, Russia, N124 billion, Lithuania, N122.3 billion and Latvia, N115.9 billion.

READ ALSO: Breadmakers to embark on warning strike over high cost of materials

It was gathered that the price of a bushel of wheat has risen by 5.7 per cent to $9.347 following the escalation of the conflict.

As measured by the FAO Food Price Index (FFPI), international export quotations of basic foodstuffs have seen almost uninterrupted increases since the second half of 2020 before the Russia-Ukrainian war. This upward trend culminated in March 2022, when international quotations reached an all-time high.

Throughout 2021, international prices of wheat and barley rose 31 per cent over their corresponding levels in 2020, buoyed by strong global demand and tight exportable availabilities resulting from weather-induced production contractions in various major wheat- and barley-exporting countries.

The upward momentum of grain and vegetable oil prices continued in the first five months of 2022. In the case of wheat, prices surged in March as tighter exportable availabilities ahead of 2022/23 harvests.

They were then compounded by export disruptions in Ukraine resulting from port closures and uncertainties regarding Russian export capacity, and the export restrictions adopted by the countries tended to exacerbate global supply concerns.

How unfavourable dollar movement against the naira is affecting the price of bread

When the dollar strengthens, commodities become more expensive in non-dollar economies such as Nigeria. This effect tends to have a negative influence on demand, and as you would expect, when the dollar weakens, commodities prices in other economies drop, triggering an increase in demand.

The dollar to naira movement has continued to worsen for the Nigerian currency as it continues to nosedive, sparking a high rise in prices of imported goods and services.

These increases have affected the economy of the nation negatively because Nigeria is a country that depends on imported goods and services to survive.

According to Information Guide Nigeria, Nigeria is one of the third-world countries that have non-convertible currencies, which is why payments for imported goods cannot be made with the Naira.

The Naira is only accepted in Nigeria as a means of payment for goods and services. There is no other country that accepts the naira as a legal tender, and this is one huge advantage that the dollar has over the naira, the dollar is accepted in almost all the major countries in the world as a means of payment.

The demand for dollars is more than the supply. The fundamental law of demand and supply is what has contributed to the constant increase in the dollar rate in Nigeria. Businessmen and importers use dollars to pay for their imported goods and many other Nigerians also use dollars to pay for services overseas.

The constant demand for dollars by Nigerians is one major factor that has contributed to the continuous escalating of dollars which is why we have an alarming increase in the prices of commodities in Nigeria, the more dollar keeps increasing, the more the prices of these goods will correspondingly increase.

Nigeria has to strive to become at least largely self-sufficient in wheat production to limit the impact of events like the current war at a global level.

LEAVE A REPLY

Please enter your comment!
Please enter your name here