Agricultural Supply Response to Trade and Exchange Rate Reforms in Nigeria

Doctoral Thesis / Dissertation, 2017

209 Pages











1.1. Problem Statement
1.2. Objectives of the Study
1.3. Justification for the Study
1.4. Scope of the Study
1.5. Outline of the Study

2.1. Introduction
2.2. General Overview of the Nigerian Agriculture
2.3. Structure of the Nigerian Agriculture
2.4. Agricultural Sector Performance in Nigeria
2.5. Agricultural Subsector: Crop Production
2.6. Policy Environment for Agricultural Production

3.1. Introduction
3.2. Conceptual Issues
3.3. Review of Theoretical Literature
Review of Methodology
Review of Empirical Literature

4.1. Introduction
4.2. Theoretical Framework
4.3. Exchange Rate, Trade Policy, Price and Supply Response
4.4. Model Specification
Table 4.1. Description of the Variables used for the Model
4.5. The Structural Factorisation

5.1. Introduction
5.2. Descriptive Statistics
5.3. Time Series Properties
5.4. Empirical Result
5.5. A Synthesis of Empirical Results and the Study Objectives
5.6. Summary of Findings

6.1. Introduction
6.2. Summary
6.3. Conclusion
6.4. Policy Implications of Findings and Recommendations
6.5. Limitations of the Study and Suggestions for further Studies



Table 2. 1: Structure of the Nigerian Agriculture

Table 2. 2: Nigeria's Agricultural Production Index (1990=100)

Table 2. 3. Growth Rate (%) of Agricultural Production in Nigeria 1970-2013

Table 2. 4: Agriculture’s Contribution to the Nigerian Economy (1970-2013)

Table 2. 5: Agricultural Export Performance in Nigeria (1970-2013)

Table 2. 6: Agricultural Imports in Nigeria 1970-2013

Table 2. 7: Trend of Agricultural Imports in Nigeria 1970-2013

Table 2. 8: International Producer Prices of Agricultural Products ($ per ton)

Table 2. 9: Cocoa Output, Export of Cocoa and International Price of Cocoa 1970-2013

Table 2. 10: Palm Oil Output, Export of Palm Oil and International Price of Palm Oil 1970-2013

Table 2. 11: Palm Kernel Output, Export of Palm Kernel and International Price of Palm Kernel 1970-2013

Table 2. 12: Groundnut Output, Export of Groundnut and International Price of Groundnut 1970-2013

Table 2. 13: Rubber Output, Export ofürubber and International Price ofürubber 1970-2013

Table 2. 14Trends of Items under Import Prohibitions in Nigeria 1994-2013

Table 2. 15: Applied Tariffürates and the Most Favoured Nation Rate (1988- 2013)

Table 2. 16 Trade Policy Reforms from 1960 to 2013

Table 2. 17: Reforms in the Exchange Rate Management in Nigeria

Table 2. 18: Agricultural Policies and Programmes from 1960 till 2013

Table 4.1. Description of the Variables used for the Model

Table 5.1: Summary Statistics of the Variables

Table 5.2: Correlation Coefficients of the Variables used in the Models

Table 5.3: Correlation Coefficients of the Variables used in the Aggregate Agricultural Output Model

Table 5.4. Unit Rootätest Using the Dickey-Fuller GLS

Table 5.5. Unit Rootätest Using NG-Perron

Table 5.6. SVAR Estimates of the Domestic Price of Cocoa

Table 5.7 Variance Decomposition of the Domestic Price of Cocoa

Table 5.8. SVAR Estimates of Domestic Price of Palm Produce

Table 5.9: Variance Decomposition of Domestic Price of Palm Produce

Table 5.10: SVAR Estimates of the Domestic Price of Palm Kernel

Table 5.11: Variance Decomposition of Domestic Price of Palm Kernel

Table 5.12 SVAR Estimates of the Domestic Price of Groundnut

Table 5.13: Variance Decomposition of Domestic Price of Groundnut

Table 5.14: SVAR Estimates of the Domestic Price of Cotton

Table 5.15: Variance Decomposition of Domestic Price of Cotton

Table 5.16: SVAR Estimates of the Domestic Price ofürubber

Table 5.17: Variance Decomposition of Domestic Price ofürubber

Table 5.18: SVAR Estimates of the Domestic Price of Cassava

Table 5.19: Variance Decomposition of Domestic Price of Cassava

Table 5.120: SVAR Estimates of the Domestic Price of Maize

Table 5.21: Variance Decomposition of Domestic Price of Maize

Table 5.22: SVAR Estimates of the Domestic Price of Yam

Table 5.23: Variance Decomposition of Domestic Price of Yam

Table 5.24 SVAR Estimates of the Domestic Price ofürice

Table 5.25: Variance Decomposition of Domestic Price ofürice

Table 5.26: Structural Vector Autoregressive Estimates of Agricultural Commodities Price Equation

Table 5.27: SVAR Estimates of Aggregate Agricultural Output

Table 5.28 Variance Decomposition of Aggregate Agricultural Output

Table 5.29: SVAR Estimates of the Output of Cocoa Equation

Table 5.30: Variance Decomposition of Cocoa Output

Table 5.31 SVAR Estimates of the output of Palm Produce

Table 5.32: Variance Decomposition of Palm Produce Output

Table 5.33: SVAR Estimates of the Output of Palm Kernel Equation

Table 5.34: Variance Decomposition of Palm Kernel Output

Table 5.35 SVAR Estimates of the Output of Groundnut Equation

Table 5.36: Variance Decomposition of Groundnut Output

Table 5.38: Variance Decomposition of Cotton Output

Table 5.39: SVAR Estimates of the Output ofürubber Equation

Table 5.40: Variance Decomposition ofürubber Output

Table 5.41: SVAR Estimates of the Output of Cassava Equation

Table 5.42: Variance Decomposition of Cassava Output

Table 5.43 SVAR Estimates of the Output of Maize Equation

Table 5.44: Variance Decomposition of Maize Output

Table 5.45: SVAR Estimates of the Output of Yam Equation

Table 5.46: Variance Decomposition of Yam Output

Table 5.47 SVAR Estimates of Output ofürice Equation

Table 5.48: Variance Decomposition ofürice Output


Figure 2. 1.Total Agricultural Output in Nigeria

Figure 2. 2: Nigeria Crop Production Index (2004-2006=100)

Figure 2. 3: Cocoa Output and Export in Nigeria 1970-2013

Figure 2. 4:Palm Oil Produced and Exported 1970-2013

Figure 2. 5: Palm Kernel Produced and Exported in Nigeria 1970-2013

Figure 2. 6: Groundnut Production and Export 1970-2013

Figure 2. 7: Rubber Production and Export in Nigeria 1970-2013

Figure 2. 8: Cotton Production and Export in Nigeria 1970-2013

Figure 2. 9: Cassava Output in Nigeria 1970-2013

Figure 2. 10: Maize Production and Export in Nigeria 1970-2013

Figure 2. 11: Yam Output in Nigeria 1970-2013

Figure 2. 12: Rice Production and Consumption 1970-2013

Figure 3.1: Author’s schematic linkages between Policy Types and Instruments

Figure 3.2: Showing the Impact of Exchange rate on agriculture adapted from Schuh (1974)

Figure 3.3: Short run Monetary Effects and Long run Real Effects of a Boom in Resource Exports

Figure 5. 1: The Impulse Response of Domestic Price of Cocoa and its Determinants

Figure 5. 2: The Impulse Response of Domestic Price of Palm Produce and its Determinants

Figure 5. 3: The Impulse Response of Domestic Price of Palm Kernel and its Determinants

Figure 5.4: The Impulse Responses of Price of Groundnut and its Determinants

Figure 5.5: The Impulse Responses of Price of Cotton and its Determinants

Figure 5.6: The Impulse Responses of Price ofürubber and its Determinants

Figure 5.7: The Impulse Responses of Price of Cassava and its Determinants

Figure 5.8: The Impulse Responses of Price of Maize and its Determinants

Figure 5.9: The Impulse Responses of Price of Yam and its Determinants

Figure 5.10: The Impulse Responses of Price ofürice and its Determinants

Figure 5.11: Impulse Responses of Aggregate Agricultural Commodity

Figure 5.12: Impulse Responses of Cocoa Output

Figure 5.13: Impulse Responses of Palm Produce Output

Figure 5.14: Impulse Responses of Palm Kernel Output

Figure 5.15: Impulse Responses of Groundnut Output

Figure 5.16: Impulse Responses of Cotton Output

Figure 5.17: Impulse Responses ofürubber Output

Figure 5.18: Impulse Responses of Cassava Output

Figure 5.19: Impulse Responses of Maize Output

Figure 5.20: Impulse Responses of Yam Output

Figure 5.21: Impulse Responses ofürice Output


Agricultural supply response (ASR) describes a change in agricultural outputätriggered by change in output price. The ASR is expected to improve when the constraints that farmers face are removed as usually done through trade and exchange rate policies reforms. Several trade and exchange rate policies reforms have been conducted in Nigeria overtime aimed at providing incentives for farmers to produce for domestic consumption and exports. While there is a growing body of literature on the imperatives of the reforms and their implementations, little attention has been devoted to how these reforms affected supply response. This study, therefore assessed the response of agricultural commodities’ prices and outputs to trade and exchange rate reforms in Nigeria during 1970-2013, when mostätrade and exchange rate reforms occurred.

The study was anchored on theories of production and supply response. A Nerlovian supply response model (1956) as modified by Karbasi and Tavana (2008) which captures the impact of trade and exchange rate reforms on agricultural commodities prices and outputs, and with acreage cultivated, labour and cost of agricultural machinery as control variables was explored. Major cash crops (cocoa, palm produce, palm kernel, groundnuts, rubber and cotton) and food (cassava, maize, yam and rice accounting for 28.0% of the 40.0% of staple food output) were purposively selected. Data were collected from the World Trade Organisation Trade Statistics, World Bank UN-COMTRADE statistics and World Development Indicators; Food and Agricultural Organisation Year Book Statistics and Agricultural Market Access Database; Central bank of Nigeria’s Statistical Bulletin and National Bureau of Statistics Annual Abstracts of Statistics. A Structural Vector Autoregression model was estimated via the generalized Impulse response functions and variance decomposition estimation techniques. All estimates were validated at p≤0.05.

Trade policy shifted from a restrictive regime in 1970 to a liberalized regime starting from1995. Exchange rate policy similarly moved from a fixed regime in 1970 to a managed/float regime from 1986 to 2013. These reforms had diverse significant effects on both the prices and outputs of all sampled agricultural commodities. Trade effect was positive for palm kernel, cotton, rubber and cassava, while negative for the others. The effects were permanent across the ten commodities, while the elasticities for all the commodities range between 0.002 and 0.05. Exchange rate effect was positive for palm kernel, cotton, maize and rice, while negative for the others. The effects were also permanent except for rubber which was transitory, while elasticities for the commodities range between 0.1 and 2.3. On aggregate, the cost of machinery was found to be negatively related to the commodities outputs. A percentage increase in the cost of machinery brings about a 15.0 percent decline in output. Land and labour were positively and negatively related to output, respectively. An additional acre of land cultivation increased aggregate supply by 31.1%, while an increase in the use of labour decreased output by 19.0%.

Trade and exchange rate reforms were critical in explaining the supply responses of sampled commodities, hence, the need for favourable and stable reforms.

Keywords: Commodities supply response, Trade and exchange rate reforms, Cash and food crops.

Word Count: 495


This Doctoral Thesis is dedicated to GOD ALMIGHTY, the most beneficent and the merciful.


I am actually short of words on where to start. Probably the vantage position is to utter the word, GOD I THANK YOU. Thank you for the courage you gave me when I wanted to give up, thank you for providing the finances to pull through. Thank you for the health to do the running around. Thank you for turning my foolishness into wisdom. Finally, thank you for my life in general.

My appreciation starts with my only supervisor, Professor E. Olawale Ogunkola. I don’t even know whether I should call him my supervisor or my elder brother. This is because, to many people they think we resemble. To me I resemble him in character. Even though he is a no nonsense person, he has a large heart full of gold. For the mentorship, for the academic guidance, the corrections, the criticisms, the advices and the troubles, he will remain indelible to my life. As a matter of fact, Professor Ogunkola taught me what itätakes to persevere, endure and be humble. Those lessons of life will never be forgotten. To him I am eternally grateful and hope for a continuous working relationship with him in the nearest future. I also wish him also long life, prosperity and good health.

My co-supervisors deserve their accolades too. From proposal stage to the conversion stage and finally to post-field stage, Dr Adewuyi was there for me. Dr Adewuyi was too thorough for my liking. There is nothing like minor mistakes in his supervision. He will not gloss over it unless those mistakes are corrected. From him, I am prepared to face the world in the field of Economics. Next was Prof. Bankole who came late to join the team. It is on record that within the space of two weeks, He finished reading my work and made valuable corrections that made this final write up a better work. I say may Allah reward you sir.

Next in line of appreciation is the Head of Department, Prof. (Mrs) Kassey Garba. A mother to all the students in the department. Always attentive to students’ problems and equally ready to assist where necessary. May God bless you abundantly. To other members of staff in the department of Economics, I appreciate all of you. From Professors Akin Iwayemi, Ademola Ariyo, Felix Egwaikhide, Adeola Adenikinju, Remi Ogun and Lanre Olaniyan, I say thank you to all of you. The Doctors in the department are not left out. Doctors Fidelis Ogwumike, Alabi Oyeranti, Alarudeen Aminu, Lawanson, Biodun Folawewo, Bimbola Oyinlola, Tosin Adeniyi, Adetunji Babatunde and Babajide Fowowe. I am elated being under your tutelage. Other administrative staff in the department are not left out. The former secretary in the department, Late Mrs Paulina Okebugwu, the department Itätechnocrat, Dr (Mrs) Ojebode, Mr Tunde all contributed in one way or the other to the success of this programme.

I cannot forget Daniel Obiri, a colleague of mine who resumed the same day with me in November 2006 at Bowen University, Iwo. He actually paid for my Ph.D form back then. Though we have lost contact, I can never forgetäthe kind gesture he did to me. Forever, he will remain part of my history. Next is former Miss Wunmi Ayeni, who hinted me that I was about losing out in the admission process on account of non-submission of my referees report. That singular information bailed me out. To her, I remain grateful. I shouldn’t fail in recognizing the impact of the management of Bowen University, for providing fund for my first year in 2007. I pray God to continue to prosper the University from glory to glory. I also acknowledge the contributions of my colleagues in Bowen University namely; Doctors Adenikinju (Mrs), Egbuwalo, Ogunleye, Chris Okhulegbe and Aremu (of blessed memory). Also Messers Abere, Adeoye, Adeleke, Adebayo, Olowoseunre and Owoeye. I appreciate the friendship exhibited during my stay in Bowen University. I must specifically emphasis the contribution of Dr Egbuwalo and Mr Olowoseunre during my little travail in Bowen University. May God meet you people atäthe hour of your needs. Of special recognition is Dr Mrs Patricia Ajayi, the third leg of the three musketeers in Bowen then. I think I can now pick her calls for thinking I am not serious with the programme. Lastly I can’t forgetäthe fatherly role Kabiyesi Onisotun of Isotun, Professor Akinola Owosekun, who so much believed in my ability as a staff under him. To ever vibrant Professor J. O. Fabayo who taught me back in 1990 and still met me as a senior colleague in Bowen University. For being proud of me as one of his ambassadors in the field of Mathematical and Micro Economics, I remain grateful. I should also remember Professors M. A. Iyoha, Prof.(Mrs) C. E. Okojie, Prof (Mrs) Ada Anyiwe and Dr.Ekanem, all from University of Benin for their impact in my life.

My next line of appreciation goes to my mentor, my friend and my senior colleague, Dr. Olumuyiwa Bamidele Alaba. Each time, I feel inferior to him, he always find ways to encourage me. For the few international outings he has exposed me to, I am very grateful. For even considering me as a friend, I am grateful. For everything he has done for my progress in academic world, I will be eternally grateful to him. I must not also forgetäthe little jibes from his wife, Dr Mrs Olufunke Alaba, all in a bid to encourage me on the programme. To the couple, I pray to God Almighty to be their guardian and protector.

To my classmates, all of whom are PhD holders today. From Doctors Samuel Orekoya, Afees Salisu, Ibrahim Adeleke, Emmanuel Maku, Okunneye, Sede and Umoru from University of Benin and others that I can’t remember their names again. I particularly single out Drs Orekoya and Salisu for their respective roles toward achieving this little success. Samuel will always be there for counseling, while Afees is always there for Econometrics. I seriously appreciate you guys. I thank all of you for the cooperation exhibited during our first year course work. One person that I should not forgetäto mention is Dr Ejindu Iwelu in the United Kingdom. Funny aboutäthe twist of life. A student, who always see me high up and ended up bagging PhD before me. To the past AGES Presidents who have helped in one way or the other, I appreciate all of you. From Doctors Ajide, Idowu Kareem, Taofiq Ibrahim and Mr. Falayi, you guys are wonderful. Other colleagues that I won’t forget include Doctors Olowookere, Babatunde Ekundayo, Olaseheinde Noah, Felix Arawomo and a host of others.

Next is the father to all, but great grandfather to me, Emeritus Professor Titiloye Ademola Oyejide. For all the corrections, lectures, criticisms, mentorship and advices, nothing short of appreciation should go to him. My prayer is that God should give him long life and good health as he moulds many more Phd holders in the department of Economics, University of Ibadan.

Now to my colleagues in the department of Economics at Ajayi Crowther Univeristy (ACU), words cannot express how grateful I am for the wonderful team that makes up the staff in the department. From Professors G. O Atoyebi, S.O. Akano and S. T. Titilola, the wonderful fathers in the department, the headship of Dr. T. B. Bamidele and the encouragement always received from the Provost College of Education, Oyo, Dr. R. A. Adefabi who happens to be an associate in the department. I cannot pray for a better team. Coming down to the main staff in the department, describing the new set of three musketeers in the department will take me weeks in eulogising. Headed by my humble self, Afolabi Ibikunle Joseph and Abiola Aina are a team ready to forge ahead in the field of Economics. The three are always ready to rub minds on issues that are proving difficult for any one of us. They are the architects of the Centre for Econometrics and Macroeconomic Analysis (CEMA) and they are wonderfully supporting me both in the headship of the Centre and the headship of the department as a whole. Joseph on his own is a brother from another mother. It was God’s grace through him that I was employed in ACU. All what I achieved today in the school has one traits or two attributable to my associationship with Ibikunle Joseph. I pray devil will not separate the two of us. Ever smiling Margret Adebimpe Oke cannot equally be forgotten. Even though I am an outsider to them initially, the way they all accepted me is beyond my comprehension. The younger lecturers look up to me and I pray to God to grant me divine wisdom in leading the department aright. The secretaries in the departmentäthat I have worked with from Peace Oforishe, Rose Business Administration, Taiwo Abe, Iya Alaba and presently my office wife, Mrs Ebere Kalu, I cannotäthank you people enough.

To my immediate family, friends and well-wishers, I cannot forget how worried each and every one of you. From my late Dad, to my Mum, my siblings: Auntie Ronke, Abiade and Temitope, I thank every one of you. To my immediate family, from my guardian angel, the love of my life, my pillar, my strength, my supporter, my comforter, my woman, my everything and the best confidant any man can desire Mrs Moromoke Abiola Asabi Aade, it is only God that can reward you for everything. For holding forth for me, the right way you are bringing up our children, the food that will always be ready once I am on the system, the words of encouragement, the ‘study-round’ you normally do when you expected me to have slept, for everything, thank you and God bless you. To my children Ajibola Abiola and Abolaji Abiola, I can’t forgetäthe contribution of the two of you. They were always ready to correctäthe Variance Decomposition tables for me to three decimal places. The baby of the house is not equally left out, Olateju Abiola for the intermittent hugs any time I stay too much on the computer. Little boy, I appreciate you.

I also appreciate other well-wishers and brothers. Imams Abimbola Yusuf, Zakariyah Khalid, Alhaji Taiwo Abolade, Kehinde Abolade, Pastor Joel of Faith in Christ International, Pastor Aderemi of Divine Calling Church and every one that has contributed to the prayers in one way or the other. God bless you all.

Finally, I wantäto appreciate the postgraduate programme Director in the department, Dr. Omo Aregbeyen. It was deliberate I didn’t mention his name when thanking the lecturers in the department. This is another brother from a different mother. My ‘bail out’, my advocate, my helper, I do not wantäto blaspheme hence I reserve my comments on other adjectives to describe the contributions he has made to my life. To my likes and may others you may assisted, you have not done it for us, but for God. That God will always reward you adequately. For me Abiola, I will remain indebted to you throughout my life.

For others my mind inadvertently escaped to mention, you are all recognized and God bless you all.

Abidemi Abiola

Department of Economics

Faculty of the Social Sciences

University of Ibadan


This is to certify thatäthis Ph.D thesis entitled AGRICULTURAL SUPPLY RESPONSE TO TRADE AND EXCHANGE RATE REFORMS IN NIGERIA, 1970-2013 is a bonafide record of independent research work done by Abidemi ABIOLA (Matriculation No 141259) under our supervision and submitted to the University of Ibadan, Nigeria in partial fulfilment for the award of the Degree of DOCTOR OF PHILOSOPHY in Economics.

Abbildung in dieser Leseprobe nicht enthalten



1.1. Problem Statement

An examination of the economic history of Nigeria shows a twist in the fortune of the economy’s two leading sectors; agriculture and petroleum. Pre-independence and immediate post-independence years show that agriculture was the leading sector in the country until the discovery of oil in commercial quantities in the late 1960s. In this period, Nigeria was the world’s second largest producer of cocoa, largest exporter of palm kernel and largest producer and exporter of palm oil. Nigeria was also a leading exporter of other major commodities such as cotton, groundnut, rubber and hides and skins (Alkali, 1997). In sum, Nigerian economy could be described as an agrarian economy because agriculture was the engine of growth of the overall economy (Ogen, 2003). Presently, agriculture and other solid mineral sectors have been relegated to the background. This is because of the stupendous amount of wealth being generated from oil. Available statistics from CBN Statistical Bulletin (2013) shows that revenue from oil in 2008 was N6, 530.60 billion, while that of non-oil revenue (agriculture inclusive) was N1,336.10 billion. By the end of 2013, the oil revenue figure had risen to N6, 809.23billion while that of non-oil rose to N2, 950.56billion. Meanwhile, with the increasing realisation of the country to diversify her economic base, the apparent manifestation of the danger in monoculture nature of the economy as well as the ultimate likelihood exhaustion of oil, the direction of non-oil sector, particularly agriculture is being looked at.

Several policies, strategies and efforts have been put in place by successive governments to enhance agricultural output and export performance. Policies such as fiscal, monetary, trade, exchange rate and general macroeconomic have been made to directly or indirectly influence positively the performance of agricultural sector in the country. The policies were designed mostly as incentives to alter the production pattern and hence the supply pattern of agricultural commodities in Nigeria.

The problem of agricultural supply response is the disparity between agricultural policies and the result obtained from them. From farm settlement programme (FSP) in 1959, to National Accelerated for Food Production Programmes (NAFFP) in 1972, to Agricultural Development Programme (ADP) in 1974, through Operation Feed the Nation (OFN) in 1976 as well as a series of agricultural policies that spanned the last four decades, the effects of these policies have not been encouraging in terms of agricultural output for domestic production as well as export. Even with the recent efforts of governmentäthrough the Agricultural Transformation Agenda (ATA) as contained in the ATA[1] document of 2012, Nigeria’s importation of wheat, rice, sugar and fish is in the neighbourhood of 1.3trilion naira every year since 2009. Agricultural output has been increasing in nominal terms, while its contribution to gross domestic product (GDP) has been declining. On the aggregate, total agricultural output was 24,263[2] metric tonnes between periods of 1970 and 1974. The output fell to 21,410 5metric between 1975 and 1979, only for itäto increase and peaked at 65,531 metric tonnes between 2008 and 2012. Although the bulk of this aggregate output are mainly from the food crops of yam, cassava, maize and sorghum, the extent of the agricultural import of food is alarming. Reports from Food and Agricultural Organisation (FAO) (2011), show that Nigeria is a huge net importer of agricultural products, with imports of approximately $3.7 billion and exports of only about $600 million in 2007. Nigeria is predominantly a bulk/intermediate commodity market and the country’s major imports are wheat, rice and sugar. The United States is a leading exporter of agricultural products to Nigeria ($725 million in 2007 compared to less than $500 million in 2006), the bulk of this exportäto Nigeria is wheat. Even with the Agricultural Transformation Agenda that began in 2007, wheat importation in 2009 was 3,804 metric tonnes valued at US$926million. By 2011, the importation has risen to 4,040 metric tonnes valued at US$1,475million. In the case ofürice, quantity imported in 2009 was 1,161 metric tonnes valued at US$731million. Two years later, 2,187 tonnes were imported valued at US$1, 242 million. FAO (2012)

In Africa, Nigeria is one of the leading exporters ofüraw agricultural commodities with limited value addition to the product before exporting them. The volume of major agricultural export[3] between 1970 and 1974 was 472 metric tonnes. The figure declined to an all-time low value of 153 metric tonnes between 1985 and 1989. Despite that it has been rising since then, it has never reached the 1970 to 1974 peak. In terms of value, agricultural export between 1970 and 1974 was valued at US425million. The values kept fluctuating; it fell to the lowest average between 1990 and 1994, when the export was valued at US244million. It must be stated the gain of the Agricultural Transformation Agenda began to manifest in year 2010, as the agricultural export value for the period 2010 to 2011 was $1.348 billion dollars. FAOSTAT (2012). This growth in the value of export will be eroded if exchange rate is considered to reflectäthe real value of the agricultural export. Of the share of agricultural export in total export, the contribution has not been significant as the highest was 15.0% between 1970 and 1974 and from 2000 to 2004, it fell to 0.8%.

Of the fiscal, monetary, trade and exchange rate policies, two are germane to the agricultural production and export. These are the trade and exchange rate policies. Central to the two policies is pricing, a major determinant of agricultural supply response to reforms and policies (Kwanashie et al 1998, Adubi and Okumadewa 1999, Bautista, 1987b). The problem from the foregoing is that despite successive governments’ efforts, policies, strategies and recommendations to enhance its performance, agricultural output has not met domestic demand and has greatly reduced the export potentials of the country. Some of the government’s efforts at revamping the agricultural sector include the Import Substitution Policy (ISP) on agriculture. The ISP as contained in Agricultural Transformation Agenda document was specifically designed for job creation and enhancecond efficiency in the growth and production of Nigeria’s key staple foods, especially rice and cassava, by placing reciprocal import bans on other imported staples such as wheat. Other policies include the Growth Enhancement Support Scheme (GESS) also formulated under the agricultural transformation agenda. The GESS is aimed atäthe deregulation of the seed and fertilizer sectors which would allow farmers unprecedented access to fertilizers to increase yields. There was also the Nigeria Incentive Based Risk Sharing System (NIRSAL), another program advanced by the Agenda, is an agricultural financing scheme that aims to de-risk lending to the agricultural sector. Under NIRSAL, the federal government provides banks with a Credit Risk Guarantee (CRG) as an incentive to lend money to farmers. The program also incentivizes farmers to borrow money from banks by enrolling them in an Interest Drawback Program (IDP), whereby interest rebates are provided on a quarterly basis to reduce the burden on farmers that interest payments present.

The fundamental issue therefore is an examination of the impact of trade and exchange rate policies on agricultural supply, with a view to investigate how these policies could translate into incentives for farmers to produce for domestic consumption as well as export. This study investigated a range of questions that bother on the impact of changes in trade and exchange rate policies on agricultural output in Nigeria. What roles did agricultural output and input prices play in enhancing farmers’ incentives to produce and export? Apart from the inputs, what other incentives were put in place to enhance agricultural performance? What were the impacts of institutional environment on the output and export of agricultural product? How did trade and exchange rate policies affect incentives for producers? How stable and appropriate were the successive government policies on agriculture? These and other related questions constitute the major thrust of this study.

1.2. Objectives of the Study

The broad objective of this study is to assess the response of agricultural output and prices to trade and exchange rate reforms in Nigeria.

The specific objectives are:

1. Examine the impact of trade and exchange rate reforms on average prices of selected agricultural products in Nigeria.
2. Analyse the effects of trade and exchange rate reforms on aggregate agricultural output in Nigeria.
3. Investigate whether the effects of trade and exchange rate reforms differ across selected agricultural output.

1.3. Justification for the Study

Supply response is important in the analysis of economic issues in Nigeria. According to Mohammad (2005), it has become more important and crucial research issue associated with agricultural growth in Pakistan since the introduction of a series of policy reforms in agricultural sector. The situation cannot be different in a country that has witnessed about fifteen changes in agricultural policies and programmes in the last four decades. Therefore, the extentäto which farmers will respond to agricultural macroeconomic variables should be of central concern to policy makers. The pertinent questions here are; why does the country not have a lasting agricultural policy that will sustain the positive performance of agricultural sector in Nigeria? What are the impacts of those changed policies on the performance of agricultural sector? This study is therefore justified given that a critical analysis of the policies in question was done with a view of suggesting more lasting agricultural sector reforms that will effectively enhance the performance of agricultural sector in Nigeria.

In terms of the theoretical underpinning, the theories driving most of the studies especially in the early 1960s through 1970s placed more emphasis on the output prices more than the input prices, an assumption that suited most of the economies where the studies were conducted. Johnson (1960), Schuh (1974), Dornbusch (1974), Chambers and Just (1979) and Dorosh (1993) are a few examples in this category. In the context of a developing economy like Nigeria, output and input prices are crucial in studies on agricultural supply. This is because while output prices are incentives for improved production, input prices especially prices of imported inputs are a major determinant in the quantity of production.

On methodology, different approaches have been adopted in handling issues relating to supply response. From descriptive analysis to the best of techniques in the quantitative analysis, quite a number of methodologies have been used. Dornbush (1974) made use of descriptive analysis, Kandilov (2008) and some other studies used OLS, Kwanashie, Ajilima and Garba (1998) adopted 2SLS, Chitiga, Kandiero and Nwgwenya (2008) explored gravity model, Haley, Herlihy and Johnston (1991) made use of SWOPSIM[4], while Takayama and Judge (1971) employed Quadratic programming. The concern of this study on the ground of methodology is that while these studies recycled all these techniques and methodologies, limited references were made to the use of Structural Vector Autoregression (SVAR), a technique that found to be most suitable for this type of analysis. The strength of SVAR over other stated methodologies include the factäthat SVAR model requires additional identifying assumptions based on institutional knowledge, economic theory, or other extraneous constraints on the model responses. Many early VAR studies overlooked this requirement and relied on ad hoc assumptions for identification that made were not based onsound economic logic. Such atheoretical VAR models attracted strong criticism. Cooley and LeRoy (1985), spurred the development of more explicitly structural VAR models starting in 1986.

On the empirical issues, a wide range of conclusions have been reached by most studies and therefore put interested academics at crossroad. For some of the studies, the impact of exchange rate on agricultural production and export is uncertain. The question of whether it has negative or positive impact is a function of many factors and dimensions as argued by Haley et al(1991). For some other studies like Chambers and Just (1979), the impact of exchange rate on agriculture is positive and large. This position was contradicted by Cho, Sheldon and McCorriston (2002) who found thatäthe impact is positively small but statistically significant. An important aspect of the study also is the examination of the exchange rate uncertainty on some sectors of the US economy. The study confirms that uncertainty of exchange rate affected agriculture more than any other sector in the US. An extension of Cho, Sheldon and McCorriston (2002) by Kandilov (2008) disproves the position of the former as the latter concludes there is a large but negative effect of exchange rate on US agriculture. This would seem to have confirmed the earlier position of Chambers and Just (1979), butäthe study wentäto show thatäthe larger negative effect disappears as case studies of more countries were included in the model. The study on Nigeria as affirmed by Adubi and Okumadewa (1999) shows also that exchange rate volatility have a high level of negative impact on export but positively affect export earnings.

An inference that could be drawn from these analyses is thatäthe empirical results on the impact of exchange rate and trade policies are inconclusive or better still, the results vary. They are inconclusive, when series of diverse results in a given economy are considered. They also vary, when the results are viewed from different economies. The import of which is, no clear and definite position has been maintained by most of the studies to aid policy makers and users of their information. The conflicting findings in the literature are enough pointers to the factäthat further studies need to be conducted on the issue.

1.4. Scope of the Study

Most of the studies previously conducted on the Nigerian economy considered cocoa, palm produce, groundnut, rubber and cotton in their analysis. The argument especially in Adubi and Okumadewa (1999) is thatäthey constitute about 60% of the agricultural output in Nigeria. However, recent increases in the prices of internationally traded food commodities that started in 2002 and peaked between 2007 and first half of 2008 make a discussion on agricultural commodities that emphasises less on food commodities not conclusive. The study therefore, includes some agricultural food commodities such as cassava, maize, yam and rice to reflect both export commodities and food crops. The major criterion for the inclusion of these food crops is that apart from the factäthatäthey constitute major staple food in the country; Nigeria is the largest producer of cassava in the world, producing 45million tones in 2009; and 19% of the total world production. More so, the four agricultural food commodities included constitute 28% of the remaining 40% of agricultural output in Nigeria.

The time frame covered by the study is between 1970 and 2013. This is justified on the ground thatäthe evolution of the trade and exchange rate policies that impacted on agricultural sector started in the 1960s, but became more prominent in the 1970s when Nigeria became a major player in the world economy on account of petroleum exporting activities.

1.5. Outline of the Study

The rest of the thesis is organised into five chapters. Following the first chapter is chapter two, which deals mainly with the background to the study. In the chapter, Nigerian agriculture and its policy environment are critically examined. Also, the structure and performance of Nigerian agriculture are highlighted in this chapter. Chapter three is on the review of literature. For ease of understanding and logical sequence, the chapter is subdivided into three main sections of theoretical, methodological and empirical literature. Chapter four, the theoretical basis and analytical framework for the study are discussed. In the chapter, the models are specified, the data are described and sources of data are indicated. Chapter five is the core of the entire study. This is where the data for the study are presented, analysed and discussed. The study is concluded in chapter six with a summary of the major findings and highlighting key issues for policy purposes.



2.1. Introduction

This chapter describes the profile and components of Nigerian agricultural sector. It presents quantitative evidence on the structure and performance of the sector. In addition, the chapter presents trend analysis and probable causative relationships among variables of agricultural supply, trade and exchange rate policies. The chapter also dwells on the policy environment in which the sector operates as well as the analysis of various macroeconomic policies put in place to enhance the performance of the sector.

2.2. General Overview of the Nigerian Agriculture

Nigeria has a highly diversified agroecological condition, which makes possible the production of a wide range of agricultural products. Agriculture constitutes one of the most important sectors of the economy (Manyong et al, 2005). The sector accounts for about 70% of the nation’s employment; it is divided into four main subsectors. These subsectors are crop production, livestock, forestry and fishery in order of contribution to the nation’s gross domestic product (GDP). In 2013, the subsectors’ contributions to agricultural GDP stood at N13, 069.10bn, N977.73bn, N486.73bn and N175.50bn for crop production, livestock, forestry and fishery, respectively. (CBN, 2014).

Crop production, the largest subsector is made up of mainly subsistence farmers who depend heavily on the traditional farming tools of hoes and cutlasses, with little or no knowledge about modern agricultural machineries and farming methods. This is one of the many reasons low agricultural productivity prevails in comparison with the agricultural outputs of comparable economies. In terms of climatic condition, the country is blessed with diverse climate. From the tropical and swampy areas in the southern part of the country, to the very dry climatic condition in the north, it makes the cultivation of most crops possible in the country.

The existence of small farmers notwithstanding, the presence of large-scale mechanised farming is being felt in the country beginning from 1999. Many agricultural-based companies are springing up in all the zones in the country. The efforts of the government in supporting agricultural research and development have equally aided in this direction. The country can boast of universities and colleges established mainly for the study of agriculture, a bank of agriculture supported by other financial institutions established with the purpose of supporting small and medium-scale farming in the country. A lot of agricultural credit schemes are put in place in virtually all the tiers of government. All these and many more constitute government intervention programmes in boosting agriculture. Currently, although in recovery from recession, the performance of Nigeria’s agriculture is poor, given its past records and abundant agricultural resources (Ogunkola: 2008b)

2.3. Structure of the Nigerian Agriculture

As stated earlier, the Nigerian agriculture is divided into four subsectors. The crop production, livestock (animal husbandry), forestry and fishery. Each subdivision has its unique contribution to the overall growth of the sector. The contributions of each subsector to overall agricultural GDP are presented in Table 2.1 below:

Table 2. 1: Structure of the Nigerian Agriculture

Abbildung in dieser Leseprobe nicht enthalten

Source: Calculated on the basis of CBN 2014 Data

Crop production is the leading subsector in the agricultural sector. It constituted about 84.95% between 1970 and 1979. Between 2000 and 2013, the share of crop production in total agricultural production had risen to 89.09%. This subsector was followed by livestock subsector that accounted for about 9.72% between 1970 and 1979. Livestock subsector however has declined in its contributions to the overall agricultural output as indicated by the fall to 6.45% between 2000 and 2013. Fishery is aboutäthe third largest component of the whole agricultural output with 2.43% share of contribution to total agricultural output. The sector has maintained a steady rise from that period as shown by the 3.24% contribution between 2000 and 2013. Forestry is the least contributing subsector, it declined from 2.90% between 1970 and 1979 to 0.92% between 1990 and 1999.

2.3.1. Nigerian Agricultural Production

Agriculture is one of the many sectors that make up Nigerian economy. It used to be the leading sector in the Nigerian economy accounting for about 80% of the nation’s gross domestic product in 1960s before it lost its place to the industrial sector from late 1970s till date. In 2011, the agricultural GDP was N14, 037.83bn which represented about 22.2% of the total GDP (CBN, 2014). In the same period, industrial sector which comprised of the crude petroleum and natural gas, solid minerals and manufacturing accounted for N15, 626.42bn which represented about 25% of the total gross domestic product. The subsectoral performance of the Nigerian agriculture is presented in Table 2.2 below:

Table 2. 2: Nigeria's Agricultural Production Index (1990=100)

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Source: CBN 2014

The summary of the Table 2.2 can be seen from the growth rate of the aggregate production index in the last four decades. Between 1970 and 1979, the index was 62.07, it rose to 64.50 between 1980 and 1989. This increase represents about 3.32%. By the end of 1990 to 1999, aggregate production index had exceeded the 1990 benchmark, as it rose to 126.67, about 36.34% increase over what was obtained in the previous decades. The last 14 years of the period under study also saw the aggregate agricultural production index rising to 175.92; a growth rate of 38.89% from 1990 to 1999.

Overall assessment of the subsectors shows that both the livestock and forestry were consistent in terms of productivity performance. Livestock rose from 49.05 between 1970 and 1979 to 68.88 between 1980 and 1989, while productivity in the sub-sector also rose from 108.73 between 1990 and 1999 to 138.42 between 2000 and 2013. Crop production which accounted for the largest component of total agricultural sector productivity declined from what was obtained between 1970 and 1979. The index shows a decrease from 61.32 between 1970 and 1979 to 57.77 between 1980 and 1989. The subsector however recorded a significant rise between 1990 and 1999 and the periods of 2000 and 2013, as the crop production index rose from 139.22 to 190.11. A proper scrutiny of the production index points to the factäthat overall, the subsector lagged behind between 1980 and 1989. The factors that accounted for this include inconsistency in both the trade and exchange rate policies as well as the inability to harmonise other macroeconomic policies working in tangentäthese policies

Relating the growth performance of agricultural sector in Nigeria to the commodities under study, Table 2.3 shows their growth rate between 1970 and 2013.

Table 2. 3. Growth Rate (%) of Agricultural Production in Nigeria 1970-2013

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Source: Author’s calculation from FAOSTAT

From the table, the growth rate of total volume of agricultural production was 4.8% between 1970 and 1974. It fell to -8.1% between 1975 and 1979 and by the end of year 2013, total agricultural production had grown to 21.1%. Production level for virtually all the commodities under consideration fell from 1970 through 1986 before the introduction of Structural Adjustment Programme (SAP) in 1986. A few exceptions were Cotton and Cassava that had growth rate of 9.4% and 17.6% respectively during the period of collapse of oil boom. The two products eventually declined in growth rate during the period of austerity measure as the growth rate fell to -53.5% and 0.4% respectively. One distinguishing feature of Table 2.3 is that all the products exhibited the highest growth rate during the SAP, between 1986 and 1994.

2.4. Agricultural Sector Performance in Nigeria

The country’s agricultural sector’s performance can be viewed from different angles. These include the sector’s contributions to: the GDP, total export (especially non-oil export) and by extension, external reserves. The sector is equally reputable for its contribution to employment generation, its contributions to food security as well as provision ofüraw materials for the manufacturing industries. The summary of the performance of agricultural sector is presented in Table 2.4.

Table 2.4: Agriculture’s Contribution to the Nigerian Economy (1970-2013)

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Source: CBN (Various Issues)

Agriculture’s contribution to GDP has been steady for the past four decades. Between 1970s and 1980s, no significant improvement was witnessed in terms of the sector’s contribution to GDP. While it was 33.6% in the 70s, it was 33.5% in the 80s. The extent of the sector’s contribution to the GDP is limited by the attention given to it by the Nigerian authority. This is because attention had shifted greatly from agriculture sector to oil sector since the late 60s. This neglect, of course impacted negatively on the contribution of the sector to GDP over the years as reflected in the subsequent decades that followed the 1980s. By the 1990s, the sector’s contribution had fallen to 31.3% and between 2000 and 2013, the sector’s contribution to GDP had fallen to 25%.

The sector’s contribution to non-oil GDP was a bit higher, the reason for this was obvious. The bulk of what constitutes non-oil GDP is aggregate of the revenue from agriculture and solid mineral resources. While agriculture had been the mainstay of the Nigerian economy, solid mineral exploitation is just gaining attention. As a matter of fact, attention to solid minerals resources became apparent from 2003, when the government started intensifying efforts for economy diversification as the nation was too much dependent on oil sector. With a 48.6% contribution in the 70s, the contribution increased to 52.4% in the 80s and by the 2000s, it had risen to 55.9%. In terms of the contribution of agricultural sector to employment, the population of agricultural sector declined by 21.2% between 1990 and 1999 from what prevailed between in 1980 and 1989. This further declined by -26.9% in the decade that followed. The drop in the agricultural population is partly because of the people’s attitude towards white collar jobs atäthe expense of farming jobs.

2.4.1. Agricultural Output Performance

One other measure of the performance of agricultural sector is the analysis of the output performance. Total agricultural output as used in this study includes volume of production from Fibre crops, oil crops, oil cakes, jute and jute-like fibres, fruits excluding melon, coarse grains, citrus fruits and cereals. The trend is presented in Figure 2.1.

Figure 2. 1.Total Agricultural Output in Nigeria

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Figure 2.1 shows the trend of agricultural output from 1970 to 2013. There was a decline in total agricultural output between 1970 and 1972, between 1974 and 1980 and between 2008 and 2010. The remaining years witnessed a steady rise in total agricultural output. The rise in agricultural output may not be unconnected with the orientation on the part of governments and different agricultural programmes that had been put in place at one time or the other.

2.4.2. Agricultural Trade in Nigeria

The trade component of any economy consists of its export and import. The history of agricultural export in Nigeria can be traced back to the 1950s when agriculture accounted for about 60 to70% of total export. Nigeria was then a major exporter of cocoa, cotton, palm oil, palm kernel groundnut and rubber (Daramola et al 2008). The fortune of the sector was affected by oil shocks of early 70s and the attendant dutch disease that followed it. From the highest volume of agricultural export of 924.1 metric tonnes between 1970 and 1974. the volume of export fell drastically to as low as 208.3metric tonnes between 1980 and 1985. Despite the efforts made in the last decade which included provision of fertiliser to farmers at subsidised rates, enhancing agricultural mechanisation through the reduction of tariff on agricultural machineries and making agricultural credit available through various agricultural credit schemes, it only peaked at 443.0 metric tonnes between 2000 and 2013. The summary of agricultural export is presented in Table 2.5.

Table 2. 5: Agricultural Export Performance in Nigeria (1970-2013)5

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Source: CBN (Various editions)

In terms of value of agricultural export, it recorded tremendous growth as it increased from 241.2 million naira during the 1970 to 1974 to 30, 285.7 million naira between 2000 and 2013. Of the share of agricultural export in total exports, the contribution has not been significant as the highest was 15.0% in the period between 1970 and 1974. Since, it dropped to as low as 1.0% between 2000 and 2013. The contribution to non-oil export is however significant. The reason that could be attributed to this was that agriculture is aboutäthe leading sector under the classification of the non-oil sector. Perhaps the most important of the agricultural performance indicators is the share of agriculture in GDP. From 32.8% between 1970 and 1974, the share has been progressively rising till date. This is an indication that despite the little attention paid to the sector, it is still a major force to be reckoned with as far as national output is concerned.

Agricultural importation is of two dimensions; consisting of agricultural inputs especially fertiliser and other farm machineries and importation of food items to meetäthe ever increasing demand for food in the country. The price of this import has significant impact on the production and subsequent export of agricultural products in the country. An increase in farm inputs means an increase in agricultural cost of production, which translates to increase in prices of agricultural commodities. Tables 2.6 and 2.7 show the trend of imports between 1970 and 2013.

Table 2. 6: Agricultural Imports in Nigeria 1970-2013

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Source: World Bank 2014

Table 2. 7: Trend of Agricultural Imports in Nigeria 1970-2013

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Source: Calculated from Table 2.6

Table 2.7 shows that agricultural import percentage of total imports and as percentage of non-oil import. Despite the fluctuating trend exhibited by the two, it is observed that at every given period of observation, the ratio of agricultural importäto non-oil import is always higher than that of the ratio of agricultural importäto total imports. This means thatäthe bulk of non-oil import comes from agricultural- related imports. For the value of agricultural import, it was negative growth rate during between1975 and 1979 and 1986 and 1994. It maintained an all high growth rate of 382% between 1995 and 1999. The growth rate fell drastically to about 15.5% between 2000 and 2013. The reason for the drop in the value of agricultural import is largely due to agricultural policies and programmes initiated under the national economic empowerment and development strategies (NEEDS), the seven-point agenda and the agricultural transformation agenda.

2.4.3. Agricultural Pricing in Nigeria

Central to agricultural output and export is the pricing. Agricultural prices are significant determinants of farmers’ responses to production and export. The pricing policy of the government and how it affects agricultural prices domestically and internationally are examined in the subsequent subsections. Table 2.8 shows the trend of domestic prices of major agricultural exports:

Table 2. 8: International Producer Prices of Agricultural Products ($ per ton)

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An important inference to be drawn from the tables is thatäthe tremendous increase in the value of export explained in table 2.5 are as a result of the effect of the domestic and the international prices and not as a result of an increase in the output of those products. While the volume of export was falling, the value was rising. Thus, the rising value was not as a result of an increase in agricultural export but rather the rising prices of the agricultural commodities in international market. More so, exchange rates had begun to manifest signs of depreciation beginning from 1986 upward. Farmers did notätake the advantage provided by the combination ofürising exchange rates and international prices to serve as incentives for production in excess of domestic demand.

2.5. Agricultural Subsector: Crop Production

The agricultural products of Nigeria can be divided into two main groups: food crops, produced for home consumption, and export products. Prior to the civil war, the country was self-sufficient in food, but imports of food increased substantially after 1973. Bread, made primarily from wheat imported from the United States, replaced domestic crops as the cheapest staple food for much of the urban population. The most important food crops are yams and manioc (cassava) in the south and sorghum (Guinea corn) and millet in the north. Available statistics from FAO (2014) shows that in 1999, production of yams was 25.1 million tons (67% of world production); manioc, 33.1 million tons (highest in the world and 20% of global production); cocoyams (taro), 3.3 million tons; and sweet potatoes, 1,560,000 tons. The 1999 production estimates for major crops were as follows (in thousands of tons): sorghum, 8,443; millet, 5,457; corn, 5,777; rice, 3,399; peanuts, 2,783; palm oil, 842; sugar cane, 675; palm kernel, 565; soybeans, 405; and cotton lint, 57. A number of fruits and vegetables are also grown by Nigerian farmers. The summary of the crop production index is presented in Figure 2.2

Figure 2. 2: Nigeria Crop Production Index (2004-2006=100)

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Source: WDI 2014

Figure 2.2 shows the production index for agricultural crops from 1970 to 2013. It comprises the figures for food crops, produced for domestic consumption, and export products. The index was 33.24% in 1970 and fell all through till 1987 when it rose to 33.29%. These represented the periods in Nigerian economic history when agriculture was given less attention in favour of the development of industrialisation and the growth of petroleum industry. A combination of efforts which included investment in research and development, making farm inputs available to farmers at subsidised cost, agricultural credit guarantee schemes and a host of other factors saw the index improving from 103.14% in 2008 to 108.69% in 2013.

2.5.1. Cocoa

Cocoa was the most important agricultural export crop in Nigeria during the 1950s and 1960s. The period was described as decades of glory for cocoa as it was the most important foreign exchange earner for Nigeria. Production peaked at 400,000 metric tons in 1970. The oil boom of the 1970s which made employment in the oil and industrial sector more attractive, this led to the neglect of the agricultural sector. Currently, land area under Cocoa cultivation in Nigerian is estimated at 650,000 ha with production of 250,000 metric tonnes per annum. Cocoa is widely cultivated in the southern belt of Nigeria owing to the soil and climatic condition prevailing in the area. This include: Abia, Adamawa, Akwa Ibom, Cross River, Delta, Edo, Ekiti, Kogi, Kwara, Ogun, Ondo, Osun, Oyo and Taraba. In terms of capacity, Ondo State is rated as the largest cocoa producing state in Nigeria (Oluyole, 2005). Because of its importance, the recent Federal Government’s concern of diversifying the export base of the nation has placed cocoa atäthe centre-stage as the most important exportätree crop. Evidence has shown thatäthe growth rate of cocoa production has been declining, which has given rise to a fall in the fortunes of the subsector among other reasons. Folayan, (2006), note that cocoa production in Nigeria witnessed a downward trend after 1971 season, when its export declined to 216,000 metric tons in 1976, and 150,000 metric tons in 1986. Reasons that accounted for this included yield loss, bad quality cocoa beans used for production, unfavourable weather conditions, poor policies and policy inconsistency as well as the scrapping of cocoa marketing board in the 1980s.

Table 2. 9: Cocoa Output, Export of Cocoa and International Price of Cocoa 1970-2013

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From 1970 to 1985, nominal exchange rate was on the average of N0.7 to US$1. Despite this stability of exchange rate during the period cocoa farmers did not seize the opportunity to increase production, even as the international price of the commodity rose from $570.2 per tonne between 1970 and 1974 period to about $2,067.0 between 1981 and 1985. Instead of production to increase it fell from an average of 246.3 metric tonnes between 1970 and 1974 to 158.2 metric tonnes between 1981-1985 period. This obviously affected the export of the commodity asit fell from 221.2 metric tonnes during the 1970 to 1974 to 152.1 tonnes between 1981 and 1985. Reasons for this include the near parity of the exchange rate during the period, alleged practices of cocoa board officials who were reported to have paid the farmers prices less than the world price of the commodity, the alleged biased nature in distribution of chemicals and other farm inputs by the board.

By 1986, when cocoa board was scrapped to allow for liberalisation of cocoa industry, both production and export increased as expected, butäthe price of the commodity fluctuated over the periods. The output and the exportätrend are presented in Figure 2.3.

Figure 2. 3: Cocoa Output and Export in Nigeria 1970-2013

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From 1970 up till 1987, output and export of cocoa were almost at par; they were found to be declining. This is an indication that almost all everything produced during the periods were exported. With the liberalisation of the sector through the scrapping of the cocoa marketing board, the competition thatäthe liberalisation triggered led to increase in output of cocoa. A fall in the world price of the commodity between 1986 and 1994 and between 2000 and 2013 caused disincentives to farmers notäto export most of their produce.

2.5.2. Palm Produce

Palm oil is the main vegetable oil produced in Nigeria. In the 60s, Nigeria was the world leader in production and exportation of palm oil. Nigeria has lost its dominant position in the international trade after 1980s and is currently the third largest producer, far behind Indonesia and Malaysia (45% and 39%) respectively of the world production in 2010). Its output indeed represented only 3% of the world production in 2010 (FOASTAT, 2012). In Africa, Nigeria’s production is estimated at 55% of the Africa’s output. The price, output and export movements of palm oil between 1970 and 2013 is presented in Table 2.10:

Table 2. 10: Palm Oil Output, Export of Palm Oil and International Price of Palm Oil 1970-2013

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Source: FAOSTAT 2014

The disparity between output of palm oil and the export of the commodity is a clear indication thatäthe country is practically not exporting the commodity the country was once known to be the largest producer of especially between 1940s and 1960s. While the output increased from an average of 473 metric tonnes between 1970-1974 to 564 metric tonnes between 1975 and 1980, the production dropped again between 1981 and 1985. Export of the commodity dropped from six metric tonnes between 1970 and 1974 to zero exportation between 1986 and 1994. Notwithstanding the increase in the international prices of the commodity from $161 per tonne between 1970 and1974 to $2,084 per tonne between 1995 and1999, the inability to meet local demand for the commodity did not even leave room for the productäto be exported. A strong naira against dollar between 1970 and 1985 was equally a disincentive for large-scale production. This problem was compounded by the activities of the defunct marketing board that was established for the promotional services and outright control of output and sales of palm oil in Nigeria. The production and export of palm oil is presented in the Figure 2.4.

Figure 2. 4: Palm Oil Produced and Exported 1970-2013

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Source: FAOSTAT 2014

Palm oil export in Nigeria has been at its lowest ebb since 1970 till date. The reason for this is thatäthe production though has witnessed rapid increase especially since 1990s, it has not met local demand for consumption and utilisation talk less of exporting to other countries. According to Ayodele (2010), Nigeria now produces a meagre 1.7% of total world production; inadequate for local consumption put at about 2.7%. The gap created between the production and consumption is often filled by importation of the commodity from countries like Indonesian and Malaysia. According to FAOSTAT 2013, the low production of palm oil in Nigeria was because of the country’s reliance on traditional method, bad infrastructure, inadequate finance as well as bad policy that often affect pricing and marketing of the product.

2.5.3. Palm Kernel

Palm kernel is a by-product of palm oil production. The demand for palm kernel is a derived demand. This is because the product is often demanded for the production of other derivatives which include palm kernel oil (PKO). (PKO) is extracted from the kernel of palm. It should not be confused with palm oil; which is obtained from the pulp of fruit of the palm. PKO has a light yellow colour and it has a milder flavour than palm oil. It is extremely high in saturated fat. Palm kernel oil has a similar uses like coconut oil in the edible and non-edible fields, because of their similarity in composition and properties. It is often used in the manufacture of various cosmetic, confectionery and pharmaceutical industries. In the consumption-production relationship in Nigeria, palm kernel faces the same problem as palm oil given the local demand for the product far outweighs the production.

Table 2. 11: Palm Kernel Output, Export of Palm Kernel and International Price of Palm Kernel 1970-2013

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Source: FAOSTAT 2014

Trends of output and export of palm kernel in Table 2.11 follows the same pattern as that of palm oil. From an average production of 283 metric tonnes between 1970 and 1974, it steadily increased to 1071 metric tonnes between 2000 and 2013. The international price of the commodity rose from US$113.8 per tonne between 1970 and 1974 to $683 per tonne between 1995 and 1999. In reaction to the rising price of the commodity, export rose from 34 metric between 1970 and 1974 to 38 metric tonnes between 1981 and 1985. When the price fell to $321.2 per tonne. Between 1986 and 1994 export equally fell to an average of 4 metric tonnes. The difference between export and production is shown in the Figure 2.5 below.

Figure 2. 5: Palm Kernel Produced and Exported in Nigeria 1970-2013

Abbildung in dieser Leseprobe nicht enthalten Source: FAOSTAT 2014

For the many uses of palm kernel especially in pharmaceutical industries, Nigeria production hardly meets the domestic consumption notäto think of exporting it. Rising price and high exchange rate are some of the reasons that accounted for the slight rise in the production of the commodity. In Figure 2.5, while palm kernel production was in the range of 200 and 250 metric tonnes between 1970 and 1991, export of the commodity was slightly above 20 metric tonnes throughoutäthe period of study. As reported earlier, even with the rising production especially from year 2003, when palm kernel production exceeded the 1000 metric tonnes limit, the production did not meet local consumption, because of the many domestic uses of the commodity.

2.5.4. Groundnut

Groundnut or Peanut (Arachis hypogaea) is a major crop grown in the arid and semi-arid zones of Nigeria. It is either grown for its nut, oil or its vegetative residue (haulms). Recently, the use of groundnut meal is becoming more recognised not only as a dietary supplement for children on protein poor cereals-based diets but also as effective treatment for children with protein related malnutrition. It is the 13th most important food crop of the world and the 4th most important source of edible oil. Its seeds contain high quality edible oil (50%), easily digestible protein (25%) and carbohydrates (20%) (FAO, 1994). The crop is mainly grown in the northern part of Nigeria; over 85% of the groundnuts produced in the country were accounted for by Kano, Kaduna, Taraba, Bauchi, Bornu, and Adamawa states (Taphee and Jongur, 2014)

Nigeria is the fourth largest producer in the world and the highest producer in Africa with 1.55 million metric tons (USDA, 2011). Nigeria is one of the countries of the world with a variety of oil seeds notably groundnut, oil palm, soybean and cotton seeds. Vegetable oils are used principally for food (mostly as shortening, margarines, and salad and cooking oils) and in the manufacture of soap and other products. Groundnut is by far the most nutritive oil-seed used in West Africa. Production and export performance of groundnut in Nigeria from 1970 to 2013 is presented in the Table 2.12 below.

Table 2. 12: Groundnut Output, Export of Groundnut and International Price of Groundnut 1970-2013

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Despite the increase in international price of groundnut from US$121 per tonne between 1970 and 1974 to an average of US$516 per tonne between 1986 and 1994, groundnut production dropped from an average of 1425 metric tonnes between 1970 and 1974 to 1135 metric tonnes between 1986 and 1994. The motivation for increased production was notäthere for the farmers in those periods as the exchange rate of naira to dollar was in favour of naira. As the country’s currency depreciated to N12.8 to US$, farmers increased the production to take advantage of the depreciation. Local demand for the product, hardly met by the supply could not allow for exportation of the product as shown by the zero export of the commodity since 1986 to 2013.

Figure 2. 6: Groundnut Production and Export 1970-2013

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The trends of the production and export of groundnut follow the same pattern of that of palm oil and palm kernel. Inconsistencies in government policies as regards production, transportation and marketing of groundnut in Nigeria, which the government was actively involved in before the disappearance of the groundnut pyramid of the north, has been identified as the major setback over the years for the crop which shows much prospect for development of the economy; as done in the past.

2.5.5. Rubber

Natural rubber, known as Hevea Brasiliensis, is a commercial tree economically grown in plantations. The natural rubber plant is useful for the latex that bleeds from the stem in the event of wound. The product of the coagulated latex is rubber. Rubber is used in the manufacture of a number of industrial products that range from tires, balls, containers, shoes, to bands and a lot of other items. Rubber is important in the socioeconomic life of many tropical developing nations, such as Nigeria and Brazil. Prior to the 60s, before the oil boom, rubber was one of the agricultural commodities that were the major generators of income for Nigeria. The cultivation ofürubber provided bulk employment for the people of the then Mid-West now known as the Edo and Delta states. Rubber is not native to Nigeria, as the name suggests, it was introduced from Brazil.

A recent report by the International Trade Centre indicates that Nigeria rubber export for 2006 stood at $7.4 million, placing her at a distant 16th position in world ranking of exporters of the commodity, while Liberia and Malaysia, who are late entrants into rubber production, raked in $134.8 million from the nearly $2 billion global rubber exports for that year. Natural rubber production peaked at about 155,000ha in 1990s and gradually declined to the current level of 144,000ha in 2012. While some countries of the far east like Thailand, Indonesia, and Malaysia accounted for over 70% of world production, Nigeria with her enormous potentials and one-time Africa leading producer now accounted for just 1.4% of the world output.

Table 2. 13: Rubber Output, Export ofürubber and International Price ofürubber 1970-2013

Abbildung in dieser Leseprobe nicht enthalten


From an average production of 66 metric tonnes between 1970 and 1974, rubber production fell to about 55 metric tonnes between 1981 and 1985. When depreciation in exchange rate began to set in from 1986 till 2013, production started rising from an average of 110 metric tonnes between 1986 and 1994 to 134 metric tonnes between 2000 and 2013. This rise in production gave way to a small export recorded between 2000 and 2013, which stood at an average of 26 metric tonnes.

Figure 2. 7: Rubber Production and Export in Nigeria 1970-2013

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The decline in natural rubber can be attributed to the marginalisation ofürubber as an economic and strategic crop due to the discovery of crude oil, the increase in production, aftermath of the dissolution of the Natural Rubber Board that gave rise to transient glut in the mid-1990s and a drastic drop in the price of the commodity. Others are the low yield due to uneconomic size of farmer’s holdings, old age of plantations, leading to reduced stands per hectare, little or no agricultural inputs like fertiliser, availability of credit facilities, and pesticides. Only about 40% of Nigeria rubber potential is currently being exploited. This is as a result of the abandonment and felling of trees, particularly by smallholders for seemingly more lucrative annual food crop production. Also, the gestation period for rubber, which is seven years during which period the farmer earns no income from the trees, shortage and high cost of labour in many rubber producing areas where the industry is forced to compete for labour with the oil sector as well as scant federal and state governments attention to the sector.

2.5.6. Cotton

Cotton as a major cash crop is of considerable social and economic importance to Nigeria. It remains by far the most important natural fibre; it represents 38% of the fibre market. Cotton is crucially important for income and employment provided its production and processing is adequate. In Nigeria, prior to the oil boom, cotton was one of the main source of foreign exchange and second largest employer of labour after the public sector (Gbadegesin and Uyovnisere, 1994).

On annual basis, area under cotton cultivation is about 0.2 to 0.6 million hectares, largely in the Savannah areas of the country. Production depends on various factors ranging from vagaries of weather through cotton price to problems of the textile industries. In 2005-2006, about 232,675 hectares were cultivated to produce about 300,000 tonnes of seed cotton or 110,000 tonnes of lint (about 607,735 bales of cotton lint). Production is mainly in three cotton zones: the northern zone (60%); eastern zone (30%); and the southern zone (10%). Production is dominated by small scale farmers, with farm sizes ranging from 3 to 5 hectares all under rain-fed ecologies.

Figure 2. 8: Cotton Production and Export in Nigeria 1970-2013

Abbildung in dieser Leseprobe nicht enthalten

According to Raw Material and Research Development Council (RMRDC) (2004), consumption of cotton lint by textile industry in Nigeria is about 100, 000 metric tons plus or minus 15%. Textile mills are forced to import 15, 000 metric tonnes of cotton to cover the shortfall in local supply and for certain specific requirements for finer yarns such as 30 to 40 inches, w not grown locally. It is clear thatäthe local supply is not enough to meetäthe demand of the product. The report further stressed that against a total demand of about 100, 000 MT of lint per annum (240,000 MT of seed cotton) by textile mills, the total production of lint has been less, thus resulting in a gap between demand and supply. This also accounted for the gap between export and production as indicated in Figure 2.8.

2.5.7. Cassava

Cassava is one of the most important crops in Nigeria. It is the most widely cultivated crop in the southern part of the country in terms of area devoted to it and the number of farmers growing it. Indeed, it is grown by almost every household. Cassava has also increased in importance in the middle belt in recent years. In all places, cassava has become very popular as a food and cash crop; it is fast replacing yam and other traditional staples of the area. In all, over four-fifths of the cultivable land area is suitable for cassava growing. Cassava is important, not only as a food crop but even more so as a major source of income for rural households. Nigeria is currently the largest producer of cassava in the world, with an annual production of over 34 million tonnes of tuberous roots. Cassava is largely consumed in many processed forms in Nigeria. Its use in the industry and for livestock feed, is well- known, this is gradually increasing, especially as import substitution becomes prominent in the industrial sector of the economy. As a cash crop, cassava generates cash income for the largest number of households in comparison with other staples. It is produced with relevant purchased inputs as frequently as and in some cases more frequently than other staples. A large proportion of total production, probably larger than that of most staples, is planted annually for sale.

As a food crop, cassava has some inherent characteristics which make it attractive, especially to the smallholder farmers in Nigeria. First, it is rich in carbohydrates especially starch and consequently has a multiplicity of end-uses. Second, it is available all year round, making it preferable to other more seasonal crops such as grains, peas and beans and other crops for food security. Compared to grains, cassava is more tolerant of low soil fertility and more resistantäto drought, pests and diseases. Further, its roots are storable in the ground for months after they mature. These attributes combined with other socioeconomic considerations are what IFAD has recognised in the crop as lending itself to a commodity-based approach to poverty alleviation. The production performance of cassava is presented in the Figure 2.9.

Figure 2. 9: Cassava Output in Nigeria 1970-2013

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Cassava output in Nigeria from Figure 2.9 was almost on the same level between 1970 and 1985 averaging about 10,787 metric tonnes. From 1986 when structural adjustment programme (SAP) was introduced and with the establishment of Directorate for Food Roads and Rural Infrastructure (DFRRI), people’s enlightenmentäto take to agriculture became more pronounced. This led to the consistent increase in cassava production, which peaked at average of 41, 461 metric tonnes between 2000 and 2013.

2.5.8. Maize

Maize or corn is a cereal crop grown widely throughoutäthe world in a range of agro ecological environments. More maize is produced annually than any other grain. About 50 species exist and consist of different colours, textures and grain shapes as well as sizes. White, yellow and red are the most common types. The white and yellow varieties are preferred by most people, depending on the region. Maize is the most important cereal crop in Sub-Saharan Africa (SSA); and an important staple food for more than 1.2 billion people in SSA and Latin America. All parts of the crop can be used for food and non-food products. In industrialised countries, maize is largely used as livestock feed and as a raw material for industrial products. Maize accounts for 30 to 50% of low-income household expenditures in eastern and southern Africa. A heavy reliance on maize in the diet can lead to malnutrition and vitamin deficiency diseases such as night blindness and kwashiorkor.

Until recent years, the bulk of maize grain produced in Nigeria was from the southwest zone. Ogunbodede and Olakojo (2001) reported that western Nigeria generally produced about 50% of Nigeria green maize, the remaining 50% being split between the North and the east. Although large proportion of the green maize is still produced from the south- western part, there has been a dramatic shift of dry grain production to the savannah, especially the Northern Guinea savannah. This can now be regarded as the maize belt of Nigeria. In this zone, farmers tend to prefer maize cultivation to sorghum. This trend may have been brought about for several reasons including availability of streak resistant varieties for all ecological zones in Nigeria, availability of high-yielding hybrid varieties, increase in maize demand coupled with the Federal Government imposed ban on importation ofürice, maize and wheat. Local production had to be geared up to meetäthe demand for direct human consumption, breweries, pharmaceutical companies, baby cereals, livestock feeds and other industries.


[1] Agricultural Transformation Agenda

[2] Figures from FAOSTAT 2012 include Fibre crops, Oil crops, oil cakes, Jute and jute-like fibres, fruits excluding melon, Coarse grains, Citrus fruits and Cereals.

[3] Cocoa, coffee, Cotton, Palm Oil, Palm Kernel and Rubber

[4] Static World Policy Simulation Model

[5] Metric tonne

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Agricultural Supply Response to Trade and Exchange Rate Reforms in Nigeria
University of Ibadan  (Department of Economics)
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agricultural, supply, response, trade, exchange, rate, reforms, nigeria
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Abidemi Abiola (Author), 2017, Agricultural Supply Response to Trade and Exchange Rate Reforms in Nigeria, Munich, GRIN Verlag,


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