Engineering Trade Policy for Food Security in Nigeria
25 million — that’s the 2023 UN estimate of people at high risk of food insecurity in Nigeria, Africa’s most populous country and largest economy. Several interconnected factors have birthed this unfortunate reality. From the truly global issue of climate change to the insecurity that has dropped food production as farmers are unable to go to their farms. There’s also the issue of lack of access to capital by small-hold subsistence farmers who according to the Food and Agriculture Organization of the UN make up 80 per cent of the farmers in Nigeria.
The reasons for food insecurity in Nigeria are legion, however, a notorious yet overlooked factor that plays a considerable role in the problem is the country’s international trade. The previous Buhari government understood this much but went about solving the issue in controversial ways. With rice at the heart of the Buhari government’s plan for food security in Nigeria, the government simply followed a trend of domestic support often indulged in by the richer West, China and India, all of whom have a considerable portion of their food supply localized. As part of its drive for food security, the Nigerian government issued grants and low-interest loans to rice farmers across Nigeria.
Imagine a world where the European Union’s two largest producers of wheat, France and Germany offshored their wheat production to their “friendly” eastern neighbour Russia who by the way is the world’s largest exporter of wheat, exporting some 18 percent of global supply. In such an infeasible alternate reality where the E.U. blundered and delegated its food production to Russia, the 24th of February, 2022 the day the Russia-Ukraine war started would have marked not just the start of the E.U.’s energy security woes but also the start of a food security issue.
Nevertheless, in the real world we live in the E.U. is cleverer than that. They have held on tight to their domestic food production even when manufacturing and other industries migrated to China and other Asian countries a trend that became noticeable among the early industrialized nations like the US in the 1980s. Even when the food production industry was not the West’s strong suit in the competitive global economy, they still found a way to compete using their coffers. The European Union and the United States give free money and cheap loans to their local farmers to drive the prices of their agricultural products lower than say those imported from Brazil. Another way the governments at Brussels and Washington achieve a similar outcome of lower prices is tax exemptions given to their local farmers.
According to an OECD report on 54 countries, 851 billion dollars was spent yearly from 2020–2022 on agricultural support with the United States and the European Union responsible for a combined 27 per cent. Other notable big spenders are China and India who together accounted for more than half of the 851 billion dollars.
The question then is: “What informs this seemingly popular trend of generous government spending on farmers?” Is the goal to outcompete foreign farmers and keep food production local? Could it be that agricultural lobbies are powerful and play a crucial role in elections in climes like America and India? Or could it be that food security is ever so crucial to national security that it makes sense to protect it from the waves of globalization to prevent one state from having control over another’s food supply? Also, could national pride and historical sentiments about agriculture be the explanation for the billions of dollars spent by states subsidizing farmers?
Whatever the reasons may be, there seems to be an almost international consensus on the grant of generous subsidies by states to their farmers so much so that the World Trade Organization — the foremost global forum for trade only abolished it in 2015. Nevertheless, the WTO rules regulating agricultural subsidies as found in the Agreement on Agriculture are more flexible than those on industrial subsidies. WTO member states often walk-around the prohibition on agricultural subsidies to issue export subsidies to their farmers, and as the name suggests, export subsidies help farmers export their locally produced agricultural produce to other states.
A controversy however arises when these subsidized agricultural exports hit the borders of another WTO member state, especially a developing state like Nigeria and permeate its market. On the surface, it looks great that cheap rice gets into Nigeria from India. The Nigerian people who are among the most food insecure in the world would have access to cheaper food, but it doesn’t end there — there are unseen dire implications. One is that the local farmers whose rice isn’t able to compete with the economic firepower of much richer India are put out of business.
Subsequently, the Indian market share of rice in Nigeria increased thanks to the subsidies provided by its government and the resultant decline of the Nigerian rice industry. In case you don’t see the problems yet — the first is that subsidies create an unbalanced playing field. Whereas the Indian rice industry uses the spare government cash to buy better equipment or employ more workers to grow their business and drive down the overall price of their rice, the Nigerian rice industry which already struggles with access to capital does not receive any of the subsidy cash.
The result of this in the global rice market is what economists in their jargon refer to as an inefficient allocation of scarce resources. What the subsidy money does is that it artificially makes up for the inefficiencies of the Indian rice industry in the production of Indian rice thereby making Indian rice more affordable than Nigerian rice even within Nigeria’s borders when it is imported. Nevertheless, economics isn’t the only consideration when it comes to foreign farm subsidies, there’s also the political question of national security. Nigeria’s national security is called into question when foreign agricultural subsidies like those issued by India to their rice farmers make Nigeria’s food system subject to foreign supply of food.
The need for protection
In a sane world, protecting your local farmers with subsidies has the same effect as protecting them with tariffs. But we do not live in a sane world now, do we? In the world we live in, the WTO rules are more in support of the use of subsidies than tariffs in the protection of local farmers, a position detrimental to the interests of many developing countries like Nigeria. The use of subsidies is a luxury that is inaccessible to many developing states because of the immense financial obligations it entails on their governments. Tariffs on the other hand have the dual benefit of protecting local farmers by imposing high tariffs on their foreign competitors and also providing a source of revenue for the government.
Nevertheless, the reason developing countries aren’t allowed by the WTO rules to fully utilize the tariff instrument is the tariff concessions made by these states upon becoming a member of the WTO. Developing country members of the WTO are expected to reduce tariffs on agricultural products by 24 per cent, this limits how much tariffs such member states may impose on agricultural products coming from a foreign subsidizing state.
What about instruments like countervailing measures used by states to remedy unfair trade practices like industrial export subsidies? Can they be applied to counterbalance foreign agricultural export subsidies? The simple answer is not really. As we discussed earlier, the WTO rules on agricultural subsidies loosely prohibits the use of export subsidies by countries engaged in food production, it is not genuine. The unholy combo of agricultural export subsidies and agricultural tariff concessions undertaken by developing states in the WTO is a reason why many developing countries are dependent on richer much-industrialized countries for their food.
What happens is very simple — the richer much-industrialized countries who have the money would subsidize their food production possibly creating excess for export. When these cheaper subsidized exports find their way into the market of a developing country like Nigeria it displaces the local producers who as mentioned earlier are mostly subsistence farmers. Nevertheless, where the true problem lies is the limited options available to the government of a developing state such as Nigeria in defending its farmers.
Nigeria in its currently poor economic state lacks the finances to match the likes of the 7.55 billion dollars India gave its rice farmers in 2021 as subsidies. Furthermore, as discussed earlier Nigeria cannot countervail the subsidies given by India to their rice farmers because the WTO rules on agricultural export subsidies isn’t as instructive as the rules dealing with industrial subsidies. To top it all off, Nigeria just like other developing states in the WTO is bound by its undertaking to reduce agricultural tariffs by 24 per cent thereby legally depriving it of the power to impose tariffs beyond the agreed limits.
Finding himself in this difficult position, Retired Major General Muhammadu Buhari, Nigeria’s president from 2015 to 2023 took up a notch the high-tariff approach of the former Goodluck Jonathan government by imposing an outright ban on the importation of rice. Under the Buhari government, foreign rice from India and other countries became contraband in Nigeria. The move was a brutish one expected from a retired military man but it nevertheless had its fans and critics alike.
The critics were quick to point out that an outright ban is a severe move unpopular in the ever-globalized world of today. They argue that in as much as the WTO has primarily failed developing states as regards critical issues such as their development and food security, there are other more diplomatic instruments provided under the WTO framework to deal with issues such as agricultural subsidies. Safeguards provided by the WTO rules permit countries to temporarily impose import restrictions such as quotas and high tariffs on products causing injury to a domestic industry.
Moreover, the critics of Buhari’s rice ban also rightfully branded it as hasty because of the apparent lack of local capacity to satisfy local consumption of rice. This policy of course caused a lot of human suffering. How? Without first ensuring that a robust domestic rice industry exists to satiate the local appetite for rice, Buhari’s government jumped the gun and banned imported foreign rice which formerly heavily supplemented domestic supply. As history would have it, the price of rice rose astronomically as local farmers scampered to fill the gaping hole left by foreign rice. This trend of inflation has continued till date — in 2023 alone the price of rice rose by an eye-popping 37 percent.
On the other side of the debate, the fans of the Buahri’s bold ban on rice argue that it is necessary given the various socio-economic woes Nigeria faces. They point to the fact that despite the ban on foreign rice in Nigeria, the country remains the fifth largest importer of rice in the world at 2.1 million metric tons as of 2022/2023. This is indicative of a bigger problem in the country — Nigeria does not have control over its food security, it is over-reliant on the global market for its food supply and this plays a significant role in its food security problems.
Overreliance on the global market for your food is dangerous if not for anything for the price and supply volatilities it is prone to. A perfect illustration of this is in 2022 Egypt when the Russia-Ukraine war broke out. Egypt holds the title “the world’s largest importer of wheat” and it imports most of this wheat, about 85 per cent of it from none other than Russia and Ukraine. As the Russia-Ukraine war broke out in 2022, Egypt’s overdependence on the global market for cheap wheat spelt doom for the country — food inflation ran amok and pushed the government to seek help from the International Monetary Fund to the tune of 3 billion dollars.
Moreover, there’s also the argument of national security to support Buhari’s ban on rice. It doesn’t make that much national security sense for one nation to give such a sensitive issue as its food security to another nation to oversee. Even when it is cheaper to delegate such a sensitive position as food production to another state, it is still not compelling enough. It’s almost as if nothing should make a country entirely dependent on another for its food unless, of course, such a country is an arid rock where nothing grows. This seemingly extreme view is because of the likelihood, no matter how little, of the food-producing country leveraging its position in relation to the food import-dependent country.
A way forward?
Whether you like the ex-military man’s policy or not, it has had a huge impact on the lives of everyday Nigerians. Last week when I went to the market in the capital, Abuja I asked for the prices of local and foreign rice and I was told that a modu (the local measurement unit) of local rice was 1,200 naira while a modu of foreign rice was 1,500 naira. With the price disparity, you can agree that the brutish outright ban policy of Buhari managed to keep Nigerian domestic rice 300 naira cheaper than the foreign counterpart which is more expensive on account of the premium charged for smuggling it across Nigeria’s borders.
However, every policy must have a human element to it — if you consider the current economic crises faced by Nigerians, the current Bola Tinubu government of “Renewed Hope” must downgrade to import quotas the outright ban on foreign rice imposed by the Buhari government. Given that Nigeria is the fifth largest importer of rice in the world despite the Buhari government ban on rice importation, there’s a need for the government to come to terms with the reality that domestic production is yet to satisfy local demand — and it’s going to take some while before it does.
Nevertheless, for the time being, instead of letting the scarcity drive up the price of rice, a staple for average Nigerians, the government can supplement the domestic supply with imports. This can be achieved through a carefully crafted federal trade policy allowing a specified amount of foreign rice to come into Nigeria just enough to alleviate the suffering of Nigerians amidst high food inflation and high energy prices but not so much to eat away at the gains made by the domestic rice industry in the absence of foreign competition. It is a balancing act which if accomplished would better guarantee food security for millions in Nigeria while the country forges ahead with its goal of self-sufficiency in food production.
