Our Tin of Milk Index analyses the extent of disparity in Income level and anomalies in exchange rate between two countries.

Take your time to briefly scroll through our introductory insights

The economics of today’s world is flush with an array of carefully thought out and mathematically derived indices used to measure the standard of living across countries. Meanwhile, the concept termed ‘standard of living’ itself has been a subject of debate and disagreement since humans began questioning rhetoric. Many have argued that the highly exalted GDP, which primarily focuses on the value of output, does not encompass the reality of today’s complex society. However, these arguments have not been able to postulate a point strong enough to sway influential conservatives. As a result, refuge was sought in a more friendly and empathetic measure, the HDI, which is short for the Human Development Index. The HDI has taken a more pragmatic route towards integrating factors that appeal to a more humane group of economists. It goes beyond the conventional norms of material value to explore often ignored factors of humanity, ranging from life expectancy and education to gross national income (GNI) and homicide rates.

Indices such as the Happiness Index published in the World Happiness Report, an idea conceived by the Sustainable Development Solutions Network of the United Nations, have also gained popularity due to the growing quest for indices that measure and study the causes of happiness and misery. However, as global competition intensifies amidst the pursuit of quality life, the prominence of Purchasing Power Parity (PPP) has taken center stage in the spotlight. It is not a champion in the game, but more like a preferred messenger for quick comparisons of the cost of living across countries. You might wonder, “Why is this measure in the spotlight?” It is in the spotlight for the same reason that globalization is the new trend. Immigration and emigration are on the rise, and income levels are tilting towards a more unified scale. Understanding the concept of PPP is crucial for policy formation, especially for regional governments and multinational companies, but it is also important for individuals such as explorers, remote workers, and digital nomads.

Now, how can we explain a technical principle to an average person? In other words, how can we simplify a complex concept to relate to the everyday life of a bus driver who enjoys a cup of coffee every morning before hitting the road? What if we narrow down the measurement of Purchasing Power Parity (PPP) to something the common man consumes on a daily basis? Obviously, such types of analysis or indices can never be mutually exclusive from the bigger picture, which often consists of a basket of goods and services. However, they can help compare income interactions to specific consumption or individual needs in society. For instance, the Big Mac Index, which was introduced by the popular media outlet ‘The Economist’, was created as a novel way of measuring whether the market exchange rate for different countries is overvalued or undervalued. It does this by comparing the prices of burgers in relation to the exchange rate across countries. It is also based on the notion of PPP, which assumes that exchange rates should move towards a rate that would equalize the prices of an identical basket of goods and services across countries (any two countries in this context).

Introducing the — Tin of Milk Index

I was in Washington, D.C., United States for an internship in 2022, and I went out for groceries one weekend. After purchasing a 280ml tin of evaporated milk at Aldi for $1.25, surprised at how little it cost, I paused to analyze the cost of the milk as a percentage of my wage. After a brief analysis, I realized that I could purchase approximately 2,500 tins of milk with my entire monthly wage. Already perplexed by the amount I had to pay monthly for rent and utilities, I became more curious, and that led me to replicate this analysis in the context of the Nigerian economy.

In the past and in the present day, many Nigerians (including leaders) have argued in favour of how much cheaper it is to live in Nigeria than in the United States. However, most times, they fail to highlight a critical determinant of what defines one’s ability to earn a decent living, which is income level. Are common Nigerians earning a living wage? Let’s find out.

Minimum wage Comparison  — How much milk can be afforded in the United States and in Nigeria.

The federal minimum wage in Nigeria per month is ₦30,000, while in the US, it is $7.25 per hour, for 40 hours per week and 20 days per month, the minimum salary in the US is $1,160. A tin of milk in the US costs an average of $1.25 across stores. What this means is that a minimum wage earner in the US can buy approximately 1,000 tins of milk with their monthly wage. 

In Nigeria, a tin of milk (140ml) costs an average of ₦400. For more accuracy, let’s equate the quantity with that of the United States. Two tins of milk (280ml) cost ₦800 in Nigeria, and it equals one tin of milk in the US.

Therefore:

280ml tin of milk (US) = $1.25

280ml tin of milk (NG) = N800

This means a minimum wage earner in Nigeria can only afford approximately 50 tins of milk with his or her minimum wage compared to the over 1,000 tins a minimum wage earner in the US can afford.

Purchasing Power Parity — perspective

The official Naira to Dollar exchange rate in Nigeria:

$1 = N461

Cost of milk:

One Tin of milk based on our analysis:

USA: $1.25 = N576.3

NIGERIA: N800 = $1.74

Equation

1-($1.25/$1.74)*100 = 28.2

Based on this analysis, we can conclude that the Nigerian Naira is overvalued by 28.2% going by the official exchange rate. This is because a tin of milk as a measure of purchasing power parity in relation to exchange rate comparisons costs less in the United States than in Nigeria. This is despite the fact that Nigeria has a lower income level than the United States.

Conclusion 

We are also interested in comparing the price of milk in other African countries with that in the United States, and we look forward to receiving your analysis on that. The best-written analysis will be published on the Tin of Milk Index page, and due credit will be given to the author.

Note: This is an ongoing concept and efforts are been put in place to improve it. we take full responsibility for any inaccuracies or errors and we welcome suggestions, contributions, and opinions from interested parties via Lukman.apply@gmail.com