Supply Response, Risk and Institutional Change in Nigerian Agriculture

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Ajetomobi, Joshua Olusegun
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African Economic Research consortium
Nigeria is among many African countries that have engaged in agricultural liberalization since 1986 in the hope that reforms emphasizing price incentives will encourage producers to respond. Hitherto, the reforms seem to have introduced greater uncertainty into the market given increasing rates of price volatility. This study therefore models supply responses in Nigerian agriculture that include the standard arguments as well as price risk. The data come from the AGROSTAT system of the statistical division of the Food and Agriculture Organization (FAO), Federal Ministry of Agriculture statistical bulletins, Central Bank of Nigeria statistical bulletins, Federal Office of Statistics Agricultural Survey Manual and the World Bank Africa Development Indicators. The data are analysed using autoregressive distributed lag and error correction models. The results indicate that producers are more responsive not only to price but to price risk and exchange rate in the structural adjustment programme (SAP) period than in the commodity marketing board (CMB) period. Following deregulation, price risk needs to be meaningfully reduced for pulse and export crops, especially cowpea and cocoa.