West Africa’s Struggle with Currency Devaluation and Food Insecurity

Nieuwsbericht | 24-04-2024 | 12:00

Drivers of food price crisis

Monetary policy mismanagement and currency fluctuations, coupled with the increasing costs of imports contribute to exacerbating food insecurity in West Africa. As import dependent countries struggle with rising input prices, particularly in vital sectors like agriculture, the burden of increased food costs becomes more noticeable, which has also been highlighted by the Food Crisis Prevention Network (RPCA). While production levels may appear stable, the macroeconomic impacts of policy shifts often result in divergent outcomes across different countries. For instance, policy changes such as the removal of subsidies on petrol consumption in Nigeria have led to inflationary pressures, affecting food affordability². This has been reflected in contrasting trends, with inflation rising in Nigeria while decreasing in neighbouring countries. The 3Fs framework (Food, Fuels, and Fertilizer) underscores the link of these sectors in driving food prices.

Challenges in food production and distribution

Food constitutes a large share of the economy in West Africa³, yet challenges abound in both production and distribution. Increasing input prices, including those for fertilizers, exacerbate the situation, especially given the region's reliance on imports for agricultural inputs. Additionally, costly infrastructure and fuel adds extra costs to accessing healthy food options, further exacerbating the issue of food and nutrition insecurity. Farmers, often net consumers rather than producers, also bear the brunt of high food prices. Higher food prices affect calorie consumption but are also leading to less nutritious diets. As indicated in the figure below, the cost of a healthy diet is higher in West Africa compared to the global average. These challenges are compounded by the institutional complexity of addressing the multiple drivers and mitigating the consequences of food price inflation. These span multiple policy domains such as agricultural productivity and risk management, public health, social protection and macro-economic management. 

Future towards sustainable food- and nutrition security

Addressing these challenges requires a holistic approach that combines short-term interventions with long-term strategies. In the short term, providing direct support for the most vulnerable households, alongside targeted subsidies and the removal of import duties on essential foods, can offer immediate relief. However, subsidizing production, eliminating import duties on foods, and closing borders for exports does seem to work ineffectively in the long run. The ineffectiveness is mostly attributable to:

• Rent capture: This refers to the situation where gains from the removal of import duties are retained by food importers instead of being passed on to consumers. Similarly, subsidies meant to support agriculture may end up benefiting state agents, influential individuals or organizations at the local level, and affluent farmers who may not actually need the financial assistance.
• Poor policy designs: This occurs when policies are not effectively designed to achieve their intended goals. For instance, subsidies may fail to sufficiently increase the perceived cost of production which discourages farmers, particularly those with smaller land holdings, from investing in e.g., fertilizer adoption.
• Lack of implementation: This refers to challenges related to the execution of policies due to insufficient reach and capability of the state. For instance, export bans may inadvertently give rise to black markets, where food items are illicitly exported at premium prices through informal channels, thereby exacerbating inflationary pressures.

However, to establish a more sustainable solution in the long term, market understanding should be improved and anticipatory measures should be implemented to mitigate crises before they escalate. Initiatives like regional food market task forces play an important role in this regard, as these initiatives aim to improve data collection and, therefore, forecasting capabilities, enabling proactive interventions to address potential food shortages or price spikes. Besides, increasing the supply elasticity of food production through investments in agriculture and infrastructure is essential to enhance the region's ability to withstand external shocks but also to contribute to stabilizing food prices in the long-term.

To enhance West Africa’s response to food price volatility, countries should improve market information systems and facilitate effective risk management tools to build dynamic food price resilience. Furthermore, it is suggested that countries should also strengthen the evidence base for their policy decisions, promote transparent and collaborative governance, prioritize investments in agriculture and rural infrastructure, and foster collaboration between the public and private sectors.