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Nigeria's Food Crisis
How Russia's invasion is exacerbating poverty
The economies of Ukraine and Russia have been cut off from global markets for different reasons. Ukrainian industry is largely on hold as much of the country has been in active defense mode against the Russian invaders, and ports and other critical infrastructure necessary for large trade volumes have been destroyed in the conflict. Russia has largely been cut off from the global economy due to heavy sanctions from western countries.
Both are very large exporters of grain. Russia and Ukraine together are responsible for approximately 25% of global wheat exports, and also about 25% of exported grain. That grain is no longer available to global markets, which has caused food prices to soar on global markets.
Wheat is a commodity with many substitutes—if wheat gets too expensive, people can always switch to rice or corn. This means that a major wheat shortage like the one we’re experiencing is causing consumers in all countries to switch to other sources of food. This limits the increase in wheat prices, but it causes the price surge to spill over into all similar substitutes of wheat as their respective demands increase. What this means is that food has become vastly more expensive in just two weeks.
This is highly relevant to Nigeria, a country where 40% of the population lives in extreme poverty ($1.90 a day). Nigeria’s woes are expressed by the reality of Engel Curve. The Engel Curve describes the relationship with income and consumption patterns of food.
People who make less money spend a higher percentage of their income on food. As a person’s income increases, their marginal propensity to consume food decreases. For a poor country like Nigeria, the implication is that a large portion of Nigerian’s income goes toward food. When food becomes more expensive, this puts an enormous squeeze on their financial situation.
This is also likely to hurt their economy from a consumption perspective. A salient analogy is the increase in gas prices in the US. Consumers are paying more for the same product at the pump, leaving less income to spend on a new car, movie tickets, eating out, etc, causing a decrease in overall output. Fortunately, gas doesn’t make up the majority of consumption, so the impact—while notable—isn’t likely to be crippling to the US.
In Nigeria, more income spent on food is leading to less consumption in other sectors of the economy. Nigerians have reportedly started to increase their purchases of unregulated medicines and herbal treatments as their budgets get squeezed by food price inflation. This both hurts conventional drug makers and distributers in Nigeria, and will likely lead to adverse medical outcomes for some.
The political implications are unclear at this stage, but African and Middle Eastern countries have experienced riots and massive political instability over inflation and food shortages. It doesn’t help that northern Nigeria—the place that is home to most farming in Nigeria—is increasingly losing what little shreds of stability it had due to increasing attacks from Boko Haram, among other groups. These attacks are likely to increase as the French pare back their military presence in the Sahel.
While much of the supply shock attention has been placed on oil and gas markets, Noah Smith recently drew attention to the Russian invasion’s impact on food markets. After reading the article I created a powerpoint presentation for my high school AP Comparative Government class about how the increase in food scarcity has impacted Nigeria, which I later learned was not needed for the class. I have decided to share the main points of my presentation in this article.