In rural communities where some commodity supply chains begin with the necessary function of production, like those which are hubs for major agricultural commodities in Nigeria, the reality of the novel coronavirus sweeping across the world seems to be distant and far off. Smallholder farmers at one AFEX warehouse location, who were engaged on COVID-19 on the sidelines of a meeting focused on fertilizer usage for the coming planting season, reflected this view as they insisted that “Corona yana Abuja”, essentially alluding to their belief that corona is in Abuja and not with them. The ability of these production centers to continue to decouple themselves from the challenges being thrown up by the spread of the coronavirus is, however, fast becoming impossible as the effect of the pandemic is increasingly being felt in the commodities market as in other sectors of the Nigerian and global economy.
COVID-19 has presented an unusual shock that is affecting both the demand and supply side of the commodities market. Preventive and containment measures such as border closures and lockdowns, which have been adopted are increasing restrictions, and as companies across the globe slow down on the purchase of inventory and intra and cross border trade activities slow down to historic lows, the commodities market is being greatly impacted. Globally, the commodities market has witnessed broad-based declines in value as 47 commodities out of the 66 commodities tracked by the world bank recorded declines with the energy index losing 44% of its value from the beginning of the year.
Prices in the Nigerian agro-commodities market began taking a hit at the start of 2020 as the early rush for commodities in the first two months of the marketing year gave way to the relative absence of large buyers in the market. To date, soybean has witnessed the steepest decline, falling by 13.55% while maize fell by 5.94% over the same period. On the other hand, export crops such as ginger and cocoa have gained 5.00% and 11.69% respectively.
Prices in the domestic market have been further impacted by the COVID-19 outbreak with the suspension of further procurement by industries normally requiring the commodities as they evaluate the demand levels and seek alternative supply and distribution networks for their products. Ginger is, however, withstanding the negative impact of the virus due to the production freeze witnessed in China (largest producer in the world) prompting a rise in prices of the root crop and also because of its therapeutic benefits. International prices of the commodity have spiked across the world.
The impact of COVID-19 on Nigeria’s commodities market will inevitably be felt by a range of actors and industries. Our ability to proffer and execute options that will enable producers, and other players, guarantee our supply chain, while simultaneously unlocking palliative measures to bolster demand will help us contain the effects of the pandemic on our commodities market. Two key recommendations from our perspective lie in supporting local producers with input loans by leveraging on agro-allied companies with last mile contact with the farmers, and the provision of trade financing and inventory support through credit lines to companies and FMCG processors operating in the country alongside the execution of export credit guarantee structures.
Access our full report on COVID-19 and Commodities right here.