Relative Price Variability and Inflation: Evidence from the Agricultural Sector in Nigeria
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Date
2007-10-27
Authors
Obasi O. Ukoha
Journal Title
Journal ISSN
Volume Title
Publisher
AERC
Abstract
The main objective of this study is to establish quantitative relationships among the relative
price volatility of agricultural commodities, inflation and agricultural polices in Nigeria.
The data for the study, covering the period 1970–2003, were obtained from publications
of the Central Bank of Nigeria, Federal Office of Statistics, and Federal Ministry of
Agriculture and Rural Development. Our results show that the effect of inflation on
relative price variability among agricultural commodities in Nigeria is non-neutral. Inflation
has a significant positive impact on relative price variability in both the long run and the
short run. The findings suggest the need for policies that will buffer the agricultural
sector from the effects of inflation in the short run, and in addition the crops subsector
from the long-run effect of inflation. Similarly, policies that reduce the rate of inflation
will minimize relative price variability among agricultural commodities and consequently
reduce inefficiency, distortions and misallocation of resources in agriculture that might
be caused by inflation. No data points in the study period showed negative inflation. As
a result of this, the data could not provide evidence for the effect of deflation on relative
price variability. Policies like the Green Revolution and structural adjustment programmes
and post-SAP policies increased relative price variability among cash crops in the long
run, but influenced food crop prices only in the short run. In addition to this, the Operation
Feed the Nation project (OFN) had a significant positive short-run effect on food prices.
Thus the agricultural policies under SAP, post-SAP and Green Revolution caused price
changes that led to efficient reallocation of resources among cash crops in the long run
and food crops in the short run. The policies should be considered in planning for the
agricultural sector. On the other hand, the price control policy brought about a reduction
in relative price variability among cash crops and consequently led to a misallocation of
resources in the sector. Cash crop prices should be allowed to be determined by market
forces of demand and supply, and no attempts should be made to fix prices administratively
Description
HC1055.U6
Keywords
Prices - Nigeria , Agriculture - Economic aspects Nigeria , Inflation ( finance) - Nigeria , price variability , agricultural sector