Food inflation in Nigeria increased by 15% during the 11 months from April 2021 to March 2022, adding pressure on the cost of living for salary earners whose incomes have not risen for close to three years.
The alarming situation is that the 30,000 Naira (US$72) minimum wage is insufficient to meet the value of basic foodstuffs for the healthy living of an adult in a month, let alone an entire family.
In January 2022, the price of essential foodstuff requirement for one adult stood at 40,980 Naira (US$98), which is about 37% higher than the minimum wage.
How then have salary earners survived?
Research on the impact of previous food price spikes in Nigeria has found that the volatility of food prices influence household food consumption patterns. There are two pathways for this. Households reduce the amount of food purchased which will ultimately result in a drop in the total calorie intake. Households may also shift spending from expensive staples to cheaper ones, the so-called substitution effect.
Recent interviews and and focus group discussions with Nigerian workers confirm the findings of previous studies. These interviews and focus group discussions are part of my ongoing analysis of food price volatility in Nigeria.
The stories of change in diet, number of meals per day, and types of the meal provided in the home pervade the views summed during the interviews and focus group discussions.
Many salary earners have had to change the quality of foodstuff they buy and exchange the household food basket items to those they can afford.
Adding the pressure is the fact that the cost of transportation, energy, cooking fuel and rent are also rising. Even school fees and prices of school books are going up.
The net effect of all of these adjustments will ultimately be an increase in the consumption of food that has less nutrition.
National minimum wage unpacked
Most of the low-income earners we interacted with said they could only afford one meal a day. And they could afford it by either borrowing or begging from those they believed had better income, and doing additional jobs to make ends meet.
Savings is now a fallacy for salary earners, as they do not even have sufficient income to survive. Those that have been diligent with savings have had them eroded to meet up with the persistently increasing cost of food.
Workers who earn the minimum wage have been hit the worst. The minimum wage in Nigeria is prescribed by the National Minimum Wage Act, 2019, with provisions for seamless review. However, in spite of the incessant rise in food prices, no review to the minimum wage is in sight. On top of this a number of federal government agencies, state, local government and private sector organisations are still erring in compliance.
Even the Nigeria Labour Congress, the umbrella body of labour unions, is yet to fully implement the minimum wage for its own staff.
No wonder that poverty has been increasing in Nigeria.
The impact of inflation
Based on a multidimensional measure of poverty, Nigeria’s poverty levels have been increasing since 2018 when the index stood at 39.1%. In 2020 it rose to 40% and in 2021 to 42.6%. Estimates for 2022 are that it will hit 44%.
The poverty index pegs extreme poverty at those living on less than US$1.90 a day. In Nigeria, the minimum wage currently amounts to about US$1.75 per day, showing how many Nigerian workers are perilously close to extreme poverty.
This demonstrates the relevance of American economist Mollie Orshansky’s 1965 proposal that the definition of poverty should be based on a family income below three times a subsistence food budget. Orshansky earned the name, Ms Poverty, because of her work on poverty and income inadequacy.
Orshansky’s definition was based on the fact that a typical low-income family spent a third of its income on food. But the picture of Nigeria is not even close, because a low-income family earns far below what can be used to provide food in the face of increasing food prices.
Also, low income families share a disproportionate burden when it comes to inflation. This is because the assets of low-income earners are mostly held in cash which gets eroded faster in the face of incessant increases in prices.
High-income earners, on the other hand, can store assets in less liquid forms making them much more immune to the distress of inflation.
Inflation also has the effect of causing a decline in real salaries and wages. This happens when food prices go up while salaries remain stagnant.
The net effect of this is that income inequality worsens.
Wage earners faced with declining purchasing power engage in survival strategies. One tactic is commodity substitution. Another is outlet substitution – workers change their supply outlets so that they can buy food at considerably lower prices.
The ongoing Russia-Ukraine war is exacerbating the situation. Global commodity and food price are rising. Grains alone have already gone up by 17.1%.
The impact will hit food prices in Nigeria if the government does nothing to alleviate the pressure.. This will mean the a further deterioration for salary earners in the country.
On top of rising food prices and low income, Nigeria is also faced with endemic challenges of insurgency, poor institutional quality and ineffective governance. Nevertheless inaction to address poverty and hunger is not an option. The government should make tackling them a priority. Immediate steps should include increasing food supply by intensifying its engagement in agricultural production, and reducing food prices.
The above article, written by Folasade Bosede Adegboye, Senior Lecturer in Finance, Covenant University, first appeared in The Conversation