Nigeria: Impacts of the Ukraine and Global Crisis on Food Systems and Poverty: Updated 2022-07-22
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Presentation prepared by Xinshen Diao, Paul Dorosh, Mia Ellis, Karl Pauw, and James Thurlow, all with the International Food Policy Research Institute, Washington, DC. This is part of the Global Crisis Country Series.
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Nigeria: Impacts of the Ukraine and Global Crisis on Food Systems and Poverty: Updated 2022-07-22
- 1. Version: 7 July 2022 Nigeria Impacts of the Ukraine and Global Crisis on Food Systems and Poverty Kwaw Andam, Xinshen Diao, Paul Dorosh, Angga Pradesha, James Thurlow International Food Policy Research Institute, Washington DC These country studies are conducted by IFPRI with financial support from BMGF, FCDO, and USAID. All studies use data and models developed with ongoing support from BMGF, USAID and the CGIAR’s “Foresight and Metrics” initiative. The Nigeria case study benefitted from working with IFPRI’s Nigeria country program, the CGIAR’s “National Policies and Strategies” initiative, and national partners. Kwaw Andam (k.andam@cgiar.org) | Xinshen Diao (x.diao@cgiar.org) | Paul Dorosh (p.dorosh@cgiar.org) | James Thurlow (j.thurlow@cgiar.org)
- 2. Version: 7 July 2022 Overview • Series of country case studies • Economywide modeling • Capture world market shocks • Estimate impacts on economy, agri-food system, poverty, food security, etc. • Simulate policy responses • Three phases of analysis: 1. Initial data collection and impact assessment 2. Data revisions and analysis of broad policy options • Cash transfers, food aid, and fertilizer subsidies • Fiscal implications for national governments 3. In-country engagement and tailored policy analysis Impact assessment Policy analysis Country coverage Countries with IFPRI RIAPA models May June July
- 3. Version: 7 July 2022 Shocks | World Food, Fuel and Fertilizer Prices World price Trade share Direct use Indirect use Incomes How big is the increase in world price? How important are food and fertilizer imports in local market? How important is the windfall revenue from oil exports for the government? Which sectors use the affected products as inputs? Which other sectors are affected via supply chains? What kinds of workers and households earn incomes within the affected sectors? Final use Which households consume the affected products? Impact Channel Considerations World Price Shocks Source: World Bank Pink Sheets Global data 11% -13% 100% 56% 34% 88% 101% Maize Rice Wheat Palm oil Crude oil Natural gas Fertilizer Change in real world prices (June 2021 to April 2022) 30 Jun 2021 - 31 Jan 2022 31 Jan 2022 - 30 Apr 2022 30 Jun 2021 - 30 Apr 2022
- 4. Version: 7 July 2022 Shocks | World Food, Fuel and Fertilizer Prices World price Trade share Direct use Indirect use Incomes How big is the increase in world price? How important are food and fertilizer imports in local market? How important is the windfall revenue from oil exports for the government? Which sectors use the affected products as inputs? Which other sectors are affected via supply chains? What kinds of workers and households earn incomes within the affected sectors? Final use Which households consume the affected products? Impact Channel Considerations Supply and Demand Supply (% by source) Demand (% by use) Nigeria data Source: IFPRI Nigeria RIAPA Model + Others = 100% + + + 0.7% 0.2% 0.8% 7.1% Products’ share of the value of total demand throughout the economy 99% 3% 96% 85% 97% 4% 15% Maize Wheat Edible oils Oil & oil products Imports Domestic 38% 64% 40% 30% 62% 36% 56% 6% 4% 64% Maize Wheat Edible oils Oil & oil products Exports Final use Input use
- 5. Version: 7 July 2022 Shocks | World Food, Fuel and Fertilizer Prices World price Trade share Direct use Indirect use Incomes How big is the increase in world price? How important are food and fertilizer imports in local market? How important is the windfall revenue from oil exports for the government? Which sectors use the affected products as inputs? Which other sectors are affected via supply chains? What kinds of workers and households earn incomes within the affected sectors? Final use Which households consume the affected products? Impact Channel Considerations Consumption Baskets Nigeria data Source: IFPRI Nigeria RIAPA Model 7.0% 9.4% 4.7% 18.3% 5.1% 40.8% 49.3% 33.4% 51.9% 39.9% 52.2% 43.4% 64.2% 33.2% 57.0% All households Rural Urban Poor Nonpoor Composition of household consumption spending Cereals & edible oils Other foods Nonfood goods & services
- 6. Version: 7 July 2022 50.2% 57.9% 63.8% 55.4% 38.6% 56.6% 15.8% 62.5% 48.1% 19.2% 36.6% 42.9% 56.1% 40.4% 25.0% Maize Sorghum & millet Rice Pulses Groundnuts Oilseeds Cassava Irish potatoes Sweet potatoes Other roots Leafy vegetables Other vegetables Cotton Nuts Cocoa Share of cultivated land using fertilizer Shocks | Fertilizer Response (crop productivity effect) Adoption Application Price Demand Response What share of cultivated land uses fertilizers? How much fertilizer is being used? (i.e., fertilizer application rate) How big is the domestic fertilizer price increase? How do farmers react to rising fertilizer prices? (i.e., price elasticity of fertilizer demand) How do yields change with reduced fertilizer use? (i.e., fertilizer response ratio) Impact Channel Considerations Fertilizer Adoption Rate Source: IFDC FUBC survey, and Living Standards Monitoring Survey (LSMA-ISA) Timing When is the fertilizer needed? Nigeria data
- 7. Version: 7 July 2022 Shocks | Fertilizer Response (crop productivity effect) Adoption Application Price Demand Response What share of cultivated land uses fertilizers? How much fertilizer is being used? (i.e., fertilizer application rate) How big is the domestic fertilizer price increase? How do farmers react to rising fertilizer prices? (i.e., price elasticity of fertilizer demand) How do yields change with reduced fertilizer use? (i.e., fertilizer response ratio) Impact Channel Considerations Crop Calendar Source: FEWSNET Nigeria Timing When is the fertilizer needed? Planting for Nigeria’s main 2022 season is already underway Nigeria
- 8. Version: 7 July 2022 Results | GDP and Employment • National GDP falls modestly • Windfall revenues from higher crude oil export prices went to the government, while higher import petrol prices, together with food and fertilizer shocks, hurt the economy • Domestic fertilizer production benefits from rising fertilizer prices Near 80% of fertilizer supply is from domestic production • Relatively large negative effect on employment because fertilizer and fuel production is capital intensive • Agri-food system GDP and employment fall • GDP declines in both primary agriculture and off-farm agri-food sectors, accounting for more than 50% of losses in total GDP • In percentage terms, larger GDP declines in primary agriculture while more job losses in the off-farm agri- food system Source: IFPRI Nigeria RIAPA Model -0.5% -0.8% -1.0% -0.5% -0.3% -1.9% -1.4% -1.1% -3.0% -2.4% -3.5% -3.0% -2.5% -2.0% -1.5% -1.0% -0.5% 0.0% Whole economy Whole AFS Agriculture Off-farm Outside AFS Agri-food system Change in GDP and employment due to food, fuel and fertilizer shocks (%) GDP Employment Note: The simulation results are for 2022 and a situation without current global price crises is the base to compare.
- 9. Version: 7 July 2022 Results | Drivers of Differential GDP Impacts • Fuel shock reduces national GDP • Exporting crude oils but importing petroleum • Higher petrol price hurts the economy • Mixed impacts from fertilizer shock • Hurts agriculture but benefits non-agriculture as 80% of fertilizer is produced domestically • Agri-food GDP losses driven by fertilizer and food shocks • Fertilizer shocks directly affect primary agriculture • Higher fertilizer prices lower demand for fertilizer, negatively affecting agricultural productivity and production • Off-farm agri-food sectors are adversely affected by higher food prices • It causes input costs for food processing to increase, and hence, lowers consumer demand • GDP losses outside the agri-food system driven by higher fuel prices • Rising petrol prices increase transaction costs and lower consumer demand Source: IFPRI Nigeria RIAPA Model -0.1% -0.5% -0.4% -0.2% -0.2% -0.1% -0.4% -0.5% -0.7% 0.1% -0.5% -0.8% -1.0% -0.5% -0.3% Whole economy Whole AFS Agriculture Off-farm Outside AFS Agri-food system Percentage change in real GDP due to food, fuel and fertilizer shocks (%) Food prices Fuel prices Fertilizer prices & response
- 10. Version: 7 July 2022 Results | Household Consumption Source: IFPRI Nigeria RIAPA Model • Household consumption falls • Larger than GDP losses as households are hit twice, by rising prices and falling incomes • Rising food prices is a more important driver of consumption losses than for GDP losses • Importance of shocks differs across population groups: • Food price shock more important for urban and nonpoor households • More import-intensive food consumption basket • Fertilizer shocks important only for rural and poor households • Rely more on farm incomes • Consume more domestically-produced foods • Fuel shock has similar effect on all household groups -0.3% -0.2% -0.4% -0.2% -0.3% -1.3% -1.3% -1.3% -1.3% -1.3% -0.1% -0.3% 0.2% -0.7% -1.7% -1.9% -1.5% -2.2% -1.6% National Rural Urban Poor Nonpoor Percentage change in real consumption Food prices Fuel prices Fertilizer prices & response
- 11. Version: 7 July 2022 Results | Changes in Inequality • Differential effects on poor/nonpoor households are driving changes in inequality: • Fertilizer shocks affect poorer households in lower quintiles negatively but benefit the top quintile, causing inequality to increase • Food prices have larger impact on richer households, because they consume more imported foods (or products that use imported inputs) • Fuel shocks have a similar effect across all household groups • Overall, inequality rises • Larger consumption losses for households in the lower quintiles Source: IFPRI Nigeria RIAPA Model -2.5% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% Q1 Q2 Q3 Q4 Q5 Percentage change in quintile consumption Food prices Fuel prices Fertilizer prices & response Combined food, fuel, and fertilizer shocks
- 12. Version: 7 July 2022 Share of population falling into poverty Results | Poverty • Poverty rises • Headcount rate up 0.9% points • 1.8 million more people pushed into poverty • Households that live far below the poverty line further impoverished • Larger increase in poverty in urban areas • Near 60% of expanded poor population • Half the population live in urban areas • Larger increase in urban poverty headcount rate • More contributions from fuel shocks that raise cost of consumer goods Source: IFPRI Nigeria RIAPA Model 0.2% 0.3% 0.2% 0.5% 0.6% 0.5% 0.1% 0.1% 0.9% 1.0% 0.8% National Urban Rural Change in poverty headcount rate (%-point) Food prices Fuel prices Fertilizer prices & response 512 351 183 1,123 641 488 148 121 1,783 991 791 National Urban Rural Change in poor population (1000s) Food prices Fuel prices Fertilizer prices & response 56% 44% Urban Rural
- 13. Version: 7 July 2022 • Food, fuel and fertilizer shocks together increase the cost of a healthy reference diet • Reference diet is the EAT-Lancet’s “healthy” diet thresholds for the six major food groups • Rising prices for edible oils (in added fats) and cereals (in staples) push up their costs as well as costs for some other food groups Results | Diet Quality Source: IFPRI Nigeria RIAPA Model • Rising food prices and falling incomes cause diet quality to worsen for many households • Prior to the crisis, few households had consumption levels and diversity needed for a healthy diet • Rising food prices become much more important for worsening diet quality than impacts on income and poverty, and it is a leading factor for 16.8 million people to become deprived in at least one additional food group for a health diet • Rural households account for more of the deterioration in diet quality, while the number for urban residents is alarmingly large too 1.0% 0.1% 0.2% -0.1% -0.1% 0.8% Net change in cost of healthy diet Contributions of food groups to change Change in the real cost of a healthy reference diet caused by rising world prices (%) Added fats Proteins Dairy Fruits Vegetables Staples 17.1% 16.1% 12.6% 14.2% 33.6% 6.4% Shares of six food groups in total cost of a healthy diet prior to the crisis Added fats Proteins Dairy Fruits Vegetables Staples 13,800 6,185 7,632 1,929 1,260 16,797 7,073 9,724 National Urban Rural Number of people to become deprived in at least one additional food group (1000s) Food prices Fuel prices Fertilizer prices & response
- 14. Version: 7 July 2022 Headlines • Together, food, fuel and fertilizer shocks lead to reductions in GDP and employment in Nigeria • Windfall revenues from higher crude oil export prices went to the government, while higher import petrol prices, together with food and fertilizer shocks, hurt the economy • Agri-food system is adversely affected by high fertilizer prices in agriculture and high food prices for its off-farm components • Poor households are more vulnerable • Larger income losses among poor households • More increases in poverty rate and number of poor people in urban area • Large deterioration in diet quality in both rural and urban areas • Next steps • Evaluate policy options available to Nigeria’s government and development partners, including using oil revenues to mitigate impacts on households, esp. the poor Impact assessment Policy analysis Country coverage May June July