With the rise in the prices of key ingredients for bread which is attributed to the forex and energy crises, bakers in Lagos are considering a reduction in the sizes of the grain product, ahead of another planned price increase as they seek to break even.
Bread is a popular staple food, and the prices of Flour, sugar, margarine and others that are among its key ingredients have shot up in the market. A bag of Flour is now sold for N33,000, up from the previous price of N30,000 that it was between the last week of October, and the first week of November while the price of a bag of sugar has also crept up to N32,000.
The Chairman of Lagos State Master Bakers Association, Raji Omotunde told InsideBusinessNG that a reduction in the size of loaves of bread is bakers’ alternative to another price increase given that they recently increased the price.
“The recent situation which emanated from the rising cost of flour and other inputs was the recent increase in the price of bread, and we are still proposing another increase but before we agree on that, we have to look inwards. Since the profit margin is not much, we have to consider reducing sizes, which is the only way out for now, so that we can remain in business”, stated Omotunde in a discussion with InsideBusinessNG.
After the price increase in July on the increase in the price of flour and other ingredients, loaves of bread that previously sold for N600 and N700 rose sharply to N1,000 and N1,200 respectively. Spaghetti (500g), a grain product that sold for N350 is now between N500 and 600 while 1kg of Semovita currently sells for between N700 and N800.
The plan to reduce the sizes of bread and the probable fresh increase in its price, and that of other grain products have, therefore, drained the hopes that Nigeria will benefit from Russia’s new position on the Black Sea Grain Export agreement brokered by Turkey and the UN in July, between Ukraine and Russia. Russia’s new position on the agreement triggered a cut in the global price of wheat by almost 6 per cent at the beginning of the month.
The Black Sea Grain Initiative is an agreement between Russia and Ukraine with Turkey and the United Nations made during the 2022 Russian invasion of Ukraine for the safe transportation of grains and foodstuffs to and from Ukraine’s Black Sea ports.
Russia on November 2 reversed its previous suspension of the agreement following the assurances to its Defense Ministry that Ukraine would not use the UN-designated ‘safe corridor’ for shipments in connection with any future attacks on Russian shipping.
Russia had pulled out of the deal after Ukraine used seaborne drones to attack the Russian Black Sea fleet in the Crimean port of Sevastopol. It alleged that Ukraine had used the so-called “grain corridor” to get its craft closer to its targets. Ukraine claimed to have damaged the Black Sea Fleet’s new flagship, the frigate Admiral Makarov, in the attack, while Russia acknowledged only minor damage to a minesweeper as well as unspecified commercial ships.
The global price of wheat, a key ingredient for flour dropped to $8.5 per bushel, almost 6 per cent on Wednesday, 2 November, retreating sharply from the three-week high of $9 on agreement by Russia to rejoin the UN-sponsored Black Sea deal that guaranteed grain shipment out of Ukrainian harbours.
This exciting development which is expected to increase worldwide supply, and also, alleviates worries of global food shortages that sent wheat prices to a record high of $12.8 in May, sparked global hope of a reduction in the prices of wheat-based products like flour, which is one of the main ingredients for bread and others in Nigeria.
Omotunde, however, ruled out a reduction in the price of wheat in Nigeria, and by extension, the price of grain products like flour, bread, and others owing to the adverse impact of some factors including the foreign exchange and energy crises.
Until last week when Naira rebounded to N670, gaining 25.5 per cent, the Nigerian currency had crashed to N900 against the US dollar in previous weeks. Diesel which manufacturing firms rely on to power their factories still sell for between N770 and N800 in the country.
“I can assure you that there will be no price reduction in the price of flour as long as Flour Millers are importing wheat with dollars whose rate has gone up to over N650. Definitely, since the rate of the dollar is going so high, nobody should expect any reduction in the rate of flour and confectionery”, stated the Lagos Chairman of the Master Bakers Association.
“Two days ago, the price of flour increased by ₦3,000 to over ₦33,000 per bag. And we are facing the same problem with sugar which is now sold at ₦32,000 per bag in addition to the prices of margarine and other inputs that have all gone up. These items are all imported, and I do not see any sign of succor at all. The high cost of inputs is making it too difficult for us to break even”.
There were complaints from bakers early in the year when the price of flour was over ₦20,000, and Omotunde said the situation will continue to get worse as long as manufacturers and Flour Millers, source their dollars at higher rates.
“Again when you consider the price of diesel and gas which the majority of us are using, you will find out that there is no way you can make a profit. It is quite unfortunate that everything is on the high side. We are just managing ourselves to remain afloat. The business is no longer profitable as expected. The overhead cost margin has swallowed up the profit margin’, he lamented.
Ukraine is among the world’s leading grain exporters, supplying more than 45 million tonnes annually to the global market, according to the UN Food and Agriculture Organization (FAO), and its invasion by the Russian invasion on 24 February, has sparked record food and fuel prices, as well as supply chain issues, with mountains of grain stocks stuck in silos.
In addition to stabilising global food prices, the Black Sea agreement is seen by the UN Secretary-General, Antonio Guterres, as a “relief for developing countries on the edge of bankruptcy and the most vulnerable people on the edge of famine”.
As it is now, Nigeria, owing to forex scarcity, may not benefit from the Black Sea agreement and the new price of $8.9539 a bushel of wheat as of 9 November owing to Russia’s refusal to extend the agreement beyond mid-November, will again worsen the situation for Nigerian flour millers.
Ukraine produces chiefly hard red winter wheat (bread wheat) and the country is the net exporter of several of the leading cereal crops: wheat, maize (corn), and barley.
Prior to the invasion of Ukraine by Russia in February, supplies from both countries contributed to roughly 30 per cent of global export, but the war and the attendant sanctions that caused a blockade at the seaports had reversed this, triggering a rise in the price of the commodity, and causing the price of flour and its end products to skyrocket.
The deal on guaranteeing safe passage for exports from two of the world’s most important grain producers had been instrumental in bringing wheat and corn prices down after they spiked in response to Russia’s invasion of Ukraine in February.
Oleksandr Kubrakov, Ukraine’s Infrastructure Minister, estimates that the country has been able to export over 10 million tons of foodstuffs in the three months since the deal was agreed upon early in the summer – most of which has been destined for poorer countries in Africa and Asia, who were hit especially hard by the initial surge in prices.
The proprietress of MeeDay Bakeries in Ketu Lagos, Inioluwa Martins who said sales had dropped owing to forex scarcity, looks forward to the sustenance of last week’s appreciation of the Naira.
“The price difference between the N20,000 that we bought flour in February, and the N33,000 current price is huge to bakers. We will be happy if the price reverted to what we were previously paying”.
