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Exclusives

Why onion has become the “new gold” in Nigeria

The persistent increase and scarcity of onions in major markets have become a major concern for many homes in Nigeria.

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Why onion has become the “new gold” in Nigeria

The price of household food items has recorded tremendous spike in recent weeks, with consumers and households particularly complaining about the price of Onions, which they now call the “new gold”.  

The persistent increase and scarcity of onions in major markets have become a rather interesting topic in recent times as the price of a big bag of dry Onions sells for an average of N80,000, while some markets sell for as high as N85,000 in Lagos State.  

READ: Increase in local sales drives Wamco Plc revenue to N150.6 billion in 9M 2020

Some traders have termed the increase as just a seasonal fluctuation, while some have blamed it on the #EndSARS protest. However, there is more to it than meets the eye, which is why Nairalytics, a research arm of Nairametrics which tracks the prices of major food items in Lagos, Nigeria, visited the Onion Section of Mile-12 market in Lagos State to get insights into the root cause of the irregular trend in price. 

READ: Prices of rice, tomatoes, frozen foods increase in September as traders lament low turnover

Below are some of the reasons highlighted by Onion traders at the market; 

  • Increase in price of fertilizers 
  • Seasonal fluctuations 
  • Insecurity 
  • Strike actions resulting from the #EndSARS protests
  • General increment in the price of items amongst others 

READ: Prices of rice, beans, pepper, others jump, as “Ghana tomatoes” flood Lagos markets

What’s the trend like? 

A look into the historical trend in the price of a big bag of Onions, reveals a 325% increase in the price of dry onions from an average of N20,000 recorded earlier in January 2020 to N85,000 as of November 10, 2020. Also, a 261.1% increase in the price of new onions from N18,000 to N65,000.

Note that between May and July, new onion was not sold in the various markets visited, it resurfaced in August 2020 – mainly due to seasonality of the commodity. 

What you should know  

Onion is one of the most commonly consumed vegetable crops in the world and widely eaten by Nigeria, as there is hardly a local Nigerian dish that does not require the use of onions in its preparation. 

  • In Nigeria, onion is grown mostly in Northern states like Kano, Kaduna, Jigawa, Sokoto, Plateau, Bauchi, and Kebbi State. 
  • There are different varieties of onions, which include red, white, and yellow onion. The red is the most common one in Nigeria and it is of great commercial value to its farmers. 
  • As of October 2020, food inflation (16.66%) is at its highest since March 2018. 

READ: Sanwo-Olu to stop pension for former governors, deputies

What they are saying 

According to Shehu – a major Onion trader at the Mile-12 market, he said the sudden increase in the price of local fertilizers has affected the price of Onions and many other farm products. He said, “sometime last year, we do import the fertilizers that we use. However, we are now forced to use local fertilizers since the ban on importation, which has now increased the price significantly.” 

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He stated further that 50kg bag of fertilizer was sold around N5,000 and N6,000 but jumped to an average of N19,000 in recent weeks. “Federal government fertilizer that is expected to remain cheap has also increased to N8,500 from an initial value of N5,000,” he said. 

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Mr Bala, on the other hand, blamed the price increase on insecurity and lack of police officers on the road. According to him, farmers could not go to their farm lands anymore due to armed robbers and kidnappers terrorizing them in the North. Hence, they make use of farm lands closer to their homes. 

READ: Commissioner attributes high cost of rice to increased production cost 

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He also said that truck drivers are afraid to convey goods from the North down to the South, as armed robbers have been attacking and stealing from them on the road ever since the FG disbanded the Special Anti-robbery squad (SARS). He urged the FG to mobilize members of the NPF and the Nigerian Army to help curb the menace perpetrated by these robbers. 

Alhaji Muhammed, a trader at the market, blamed the increase in onion price on the aftermath of #EndSARS protest that was hijacked by hoodlums. During the looting and vandalization spree on Wednesday 21, 2020, several lorries carrying Onions from the North to Lagos State were allegedly burnt including the goods in them, he said. 

READ: Eid-El-Kabir: Food prices surge, as ram traders decry low patronage

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According to him, the burning act has made the association of Onion sellers decide to reduce the number of lorries they bring in. He said, “Usually about 40 to 50 lorries of Onions come into the Mile-12 market daily, now we barely receive 2 to 3 lorries in a day. This scarcity has also contributed to the significant hike in price.”

He, however, stated that the association is having a discussion with the FG and will resume when all has been settled. 

READ: Lagos 2020 budget performance improved from 56% to 77% at the end of Q3

Finally, Mr. Usman highlighted other factors that has impeded the free flow of food items from the North into Lagos State. “Lack of security has discouraged our drivers from traveling due to kidnappers and armed robbers. Meanwhile, where and when there are Soldiers or member of the Nigerian police, they collect huge amount of money from the drivers before allowing them passage.”  

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This payment at different stop on the road, end up affecting the price of the goods when it finally arrives into Lagos State. Another problem is the increase in the price of fuel, a necessity for the mechanized farmers and the drivers who convey the finished goods.”

READ: May & Baker Nigeria Plc records 8.85% revenue increase in 2020 9M

Market reaction 

Nairametrics Research Analyst found the market filled with people negotiating prices at each store. However, a common reaction was dissatisfaction on the part of the customers concerning the price of onions. 

Mrs. Olaoluwa, while talking to a trader at Mile-12 market could be seen trying to convince him to sell a big bag of new onions for N50,000, which he declined. Speaking to Nairametrics Research, she said, “We are tired of the persistent increase in the price of food items in Lagos State, especially onion. We are now buying a bag of Onions for N60,000 while we sell about 9 pieces of Onions for N1,000. The government should come to our aid and help us, the hardship is too much,” she concluded bitterly.

Mrs Chibu, on the other hand, confirmed that the increase in the price of onions has discouraged many customers in her area from cooking with Onions. “Many customers in my area now cook without the use of onions, which is why I am not buying much, so that I won’t fall into loss,” she said. 

Bottom line 

The sustained increase in the price of onions will most likely affect Nigerians during the yuletide, as onions is a commonly used vegetable fruit in preparing most of the Nigerian and International delicacies during the period.

2 Comments

2 Comments

  1. Enoma Beatrice

    November 12, 2020 at 8:46 pm

    The Federal Government should look into insecurity on our high way,so as to enable farmers bring down food.Even the unborn baby in the womb is feeling the hardship.Thank You naira metrics.

  2. Aliyu Muhammad Tureta

    November 13, 2020 at 10:21 am

    Excellent congratulations for the update and for the record we are major players when it comes to the issue of Onion, Garlic Tomatoes Sweet and hot peppers
    You need to visit sokoto state for more practical information, you may now see the negative effect of flood in flood plain areas like sokoto and subsequent impact on supply chain of the commodities at National level
    Thanks for the efforts and concern
    Aliyu Muhammad Tureta Director Agric services ministry of Agriculture sokoto state

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Exclusives

The Nigerian economy is increasingly dollarized but there is a way-out

Nigeria’s overdependence on Oil has brought about high dollarization in Africa’s biggest economy.

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For managers of the Nigerian economy, it was a huge sigh of relief when the National Bureau of Statistics reported that the country had surprisingly exited a recession in the 4th quarter of 2020. Contrary to most analyst expectation, the Nigerian economy grew by 0.11% in the 4th quarter of 2020.

Despite the return to growth, albeit tepid, a dark cloud of uncertainty continues to hover over the minds of millions of Nigerians as the broader economy remains in a fragile state. A key factor that remains a bellwether for the economy is the exchange rate, which is always perfectly correlated with the price of oil and the resultant dollar related export earnings.

Data has repeatedly shown that the country of over 200 million people is affected by the volatility of crude oil prices in the international market, particularly in the exchange rate value of the naira. Without oil, the Nigerian economy in its current state will collapse.

Data from Nairalytics, a data-sharing portal, reveals that the oil sector provides for 85% of Nigeria’s export earnings and 55% of its government revenues, making the nation highly dependent on the dollar for its survival. It appears a lot of financially savvy Nigerians now this already and are increasing their dollar positions.

According to Silas Ozoya, Founder/CEO of SUBA Capital LLC, in an exclusive interview with Nairametrics, a growing number of Nigerians are getting more attached to the US dollar due to high inflation and low purchasing power of the naira.

“Many Nigerians are beginning to dollarize their spending, investment and asset holdings to hedge against the ever-increasing inflation rate and our strong economic romance with recession,” Ozoya said.

Nigeria, Africa’s biggest crude oil producer, has been heavily impacted by the plunge in crude oil prices following the outbreak of the COVID-19 pandemic, with the nation’s authorities adjusting the naira twice in the year 2020 to deal with the pressure.

Besides the drop in foreign exchange revenues from crude oil export, diaspora remittances, which made up about 5% of Nigeria’s GDP in the year 2019, also experienced a significant decline in 2020, again due to the impact of the pandemic and the economic challenges faced by many nations across the globe.

Uwa Osadiaye, a financial analyst in a leading merchant bank, in a note to Nairametrics, revealed that the Nigerian apex bank had made great efforts to reduce the country’s high dependence on the dollar. He advised the nation to increase its Agricultural production.

“The central bank has tried to do this with little success but I believe that beyond administrative measures, the key could lie in increased domestic production of things we consume that aren’t commoditized internationally for a start, such as food crops,” Osadiaye said.

Temitope Busari, CFA, in a telephone interview with Nairametrics, said that it was time for Nigeria as a country to diversify.

“One outcome of the diversification of the Nigerian economy, and perhaps the most critical one at this time, is the potential to diversify our foreign exchange earnings as a sovereign state. It will reduce overdependence on crude oil, maximize opportunities in erstwhile neglected sectors and project the country as the destination for top-class value creation in other areas outside being an oil-producing state,” Busari stated.

The financial analyst also spoke on the need for Africa’s leading oil producer to invest more in intellectual property and encourage Nigeria’s talent in the diaspora, saying:

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“We have produced some of the most brilliant minds in the world evidenced by the ground-breaking successes recorded by Nigerians in diaspora (Medical professionals, Software engineers, resilient small business owners to mention a few), and we must begin to drive policies to retain that talent in-country and make the world pay premium dollar for it.”

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Adetayo Teluwo, a scholar at Warwick Business School, said that the narrative seems to be changing as Nigerians are now beginning to embrace homemade goods.

“The Fashion & Style scene continues to boom. From side hustles to globally-competitive websites with options to accept payments from customers all over the globe,” Teluwo said.

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Bottom line

Economic experts believe that the way to solve this growing menace is for Nigeria to promote free markets and support large scale exports from the Agricultural, Mining, and Technology sectors. The country should tap into its raw diamond which is “intellectual services” to develop a knowledge economy.

Nigeria can draw lessons from India, which has performed remarkably well in creating an outsourcing and knowledge-based economy valued at over 150 billion dollars per annum. This has put India on the technology map, as a destination of low-cost but high-quality technical services, helping the densely populated nation to generate sufficient economic ripple effect to drive job and wealth creation.

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Exclusives

Three things Nigerians can learn from Warren Buffet’s latest letter

Three things we learned from Berkshire Hathaway’s (Warren Buffet’s) 2020 letter to shareholders.

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warren-buffett, Young Investors, Here’s why Warren Buffet's $4.6m lunch with Bitcoin entrepreneur is experiencing delay , What Warren Buffet will do if he traded Nigerian stocks

Three things we learned from Berkshire Hathaway’s (Warren Buffet’s) 2020 letter to shareholders.

Warren Buffet (Sage of Omaha) recently released his annual letter to Berkshire Hathaway’s shareholders providing a recap of 2020 performance, as well as, giving his general perspective of his company’s journey.

Investors all around the globe fall over themselves to pay attention to what Mr. Buffet says, as well as how his portfolio of companies are performing. Just to learn as much as possible from one of the world’s most successful investors to date.

We at Nairametrics are no different and in this article, we will share some key business takeaways from the 2020 letter.

READ: Young Investors can learn these tips from Warren Buffet

1. Compounding still makes you rich

Just in case some investors momentarily forget about the power of compounding and consistency in investments, the very first page of Mr. Buffet’s letter serves up a timely reminder.

Specifically, since 1965 to 2020, the market value of Berkshire Hathaway’s stock has grown at a compounded rate of 20%. This is remarkable given that very few companies last that long (55 years) let alone provide such returns in US dollars over such a period of time. Even the S&P 500 with dividends included compounded at 10% (which is no small feat in of itself).

This lesson here is that for Retail investors, SMEs, startups, the power of compounding doesn’t need to be continually reminded, it needs to be a primary focus as you seek to deploy capital.

READ: Analysts pick Nigerian stocks Warren Buffett may likely buy

For context, in 1965 our dear country Nigeria had approximately $240million in external reserves.

  • If only 1% (i.e. $2.4million) had been invested in the S&P500 index and kept in a fund, the value of that fund today will be $56.3billion.
  • Alternatively, if only 0.05% ($1.2million) had been invested in Berkshire Hathaway stock and kept in a fund, the value of that fund today will be worth $67.45billion.

You can learn more about the power of compounding and here also.

2. Always focus on your CORE objectives and Key results

In 2020, Berkshire Hathaway earned USD$45billion of which $21.9b was operating income, $4.9b was unrealized gain, $26.7b was unrealized gain partially offset by $11b loss write-down.

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Despite the huge unrealized gain of $26.7b, Mr. Buffet in his typical style was dismissive of unrealized gains but rather was quick to point out that his core objectives of growing operating income and acquiring good companies were not met in 2020!!!.

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  • “Operating earnings are what count most, even during periods when they are not the largest item in our GAAP total. Our focus at Berkshire is both to increase this segment of our income and to acquire large and favorably-situated businesses. Last year, however, we met neither goal: Berkshire made no sizable acquisitions and operating earnings fell 9%. We did, though, increase Berkshire’s per-share intrinsic value by both retaining earnings and repurchasing about 5% of our shares.”

READ: Why Warren Buffett’s company is buying shares of a gold mining company

Furthermore, Mr. Buffet points out that Berkshire Hathaway’s earnings do NOT factor any portion of the operating earnings of companies which they have stakes in, such that only the dividends due to Berkshire are included in the results.

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In other words, he is keen to avoid clouding actual performance of his CORE investment vehicle by avoiding accounting gimmicks which gross-up earnings.

For Nigerian startups, SMEs, retail investors, the lesson here is that a laser-focused approach to tracking CORE business earnings helps provide business owners with clarity about actual business performance. This persistent clarity keeps owners grounded on what are the key areas of focus for improved business performance whilst avoiding reporting superficial income.

READ: What Warren Buffet will do if he traded Nigerian stocks

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3. Avoid business complexities AND always choose the most profitable business path which offers the least resistance.

We previously mentioned, Mr. Buffet’s preference to tracking income from CORE businesses. In his letter to shareholders, he goes further to discuss his apathy to the traditional Conglomerate.

Specifically, most businesses that are acquired are seldom leaders in their sector and often are underperforming hence the need to be acquired. Consequently “Conglomerates” who focus on fully acquiring other businesses will likely end up with a portfolio of “Sub-optimal” businesses.

Turning around the fortunes of these “acquired’ businesses will require management time and effort whilst distracting from CORE operations and creating business complexities.

Mr. Buffet notes that going forward Berkshire Hathaway’s approach will seek to avoid this option of undue business complexity and focus on path of least resistance to profitability. This will be achieved by continuing to find very good businesses and taking a stake in these well run businesses.

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  • “It took me a while to wise up. But Charlie – and also my 20-year struggle with the textile operation I inherited at Berkshire – finally convinced me that owning a non-controlling portion of a wonderful business is more profitable, more enjoyable and far less work than struggling with 100% of a marginal enterprise.
  • “For those reasons, our conglomerate will remain a collection of controlled and non-controlled businesses. Charlie and I will simply deploy your capital into whatever we believe makes the most sense, based on a company’s durable competitive strengths, the capabilities and character of its management, and price.
  • “If that strategy requires little or no effort on our part, so much the better. In contrast to the scoring system utilized in diving competitions, you are awarded no points in business endeavors for “degree of difficulty.” Furthermore, as Ronald Reagan cautioned: “It’s said that hard work never killed anyone, but I say why take the chance?”

The lesson here for Nigerian startups, SMEs, retail investors is that rather than always wanting to go alone into new ventures, sometimes you need to seek competent partners to collaborate and execute ventures with. (i.e., successful business isn’t always about who struggled the most).

Finally, (Yeah, I know I said three things, but this is also an important takeaway), one additional point is that consistency pays. We previously stated that Berkshire Hathaway stock has returned 2,810,526% between 1965 to 2020. One way that Mr. Buffet has accomplished this is by being very consistent in his portfolio. Consistency can be seen in the duration of holdings, as well as the general mix of the sectors of interest.

With regards to duration, the three most valuable assets in his portfolio have been held for at least 15years plus.

Holding Duration Sector 
GEICO 1951 to date Financial Services – Insurance 
BHE (Berkshire Hathaway Energy) 1999 to date Utilities – Energy 
BNSF (Burlington Northern Santa Fe, LLC) 2006 to date Utilities – Freight/Transport 

Even if you then look at the top 15 investments in Berkshire’s portfolio, you notice it is comprised largely of Financial Services, Utilities stocks and Large Tech firms.

The lesson here for Nigerian startups, SMEs, retail investors is that if you find something that you are good at, keep doing it and producing consistent results, stay within your area of competence and aim to maximize value.

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