The Nigerian economy: Response of agriculture to adjustment policies
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Date
1998-03-07
Authors
Kwanashie, Mike
Ajilima, Isaac
Garba, Abdul-Ganiyu
Journal Title
Journal ISSN
Volume Title
Publisher
African Economic Research consortium
Abstract
This study estimated price and non-price supply response coefficients for nine individual
crops, sub-sectoral aggregates and commodity exports using the two-stage least squares
(TSLS) and seemingly unrelated regression method (SURM) as tools for evaluating the
effects of sub-sectoral aggregates on Nigerian agriculture. The estimates confirm two
results in the supply response literature: (1) short-run price elasticities of individual crops
are smaller than the long-run elasticities and (2) commodity sub-sectoral aggregates do
not respond significantly to prices as individual crops. The results also show that the
responses of food crops are sensitive to Nigeria’s agro-climate and the traditional cropping
patterns of Nigerian farmers, who are mainly smallholders. Moreover, individual crops
and sub-sectoral aggregates do not respond significantly to capital expenditure on
agriculture (CEA), possibly because of action lags, weak choice of agricultural
infrastructures and corruption. Non-tradeable crops are more sensitive to the SAP dummy
for institutional change (D2) than to the price support and food import dummy (D1).
However, the SAP dummy is likely to indicate the effects of the reverse flow of labour
from urban to rural areas following the down sizing that accompanied SAP. This is because
food (cassava, millet and groundnut) and cotton (consumed mainly by domestic textile
companies) are the only crops that have significant and positive response coefficients.
Finally, commodity exports are positively sensitive to terms of trade.
The results point strongly to two conclusions. First, the significant sensitivity of crops
to price incentives is not sufficient to generate desired aggregate response. This result is
consistent with the findings of the supply response literature and suggests that structural
adjustment is more likely to affect the distribution of farm incomes than agricultural
productivity and growth. Second, the sensitivity of commodity exports to terms of trade
implies that external and, hence, exogenous factors play a critical role in the path of
exports. Therefore, getting domestic prices of commodities right would not be sufficient
to expand the foreign revenue from commodity exports. This is also consistent with the
consensus in the 1970s about the international commodity price and the well-established
neoclassical propositions about the short- and long-run paths of commodity prices and
income under conditions of free enterprise.
The results suggest that price incentives, shorter policy lags, more efficient
infrastructural support to smallholder farm households, and less corruption in the design
and implementation of agricultural policies would raise the production possibility frontier
of farmers, who make up over 60% of employed Nigerians. Food should be at the core of
a socially optimal Nigerian agricultural policy because it has the strongest potential for
structural transformation of the economy and better price and policy responsiveness
than tradeable crops.