AN EMPIRICAL ANALYSIS OF STAPLE FOOD PRICE VARIABILITY AND AGRICULTURAL SECTOR RESPONSE TO RANDOM OIL PRICE SHOCKS IN NIGERIA (1974-2010)

AN EMPIRICAL ANALYSIS OF STAPLE FOOD PRICE VARIABILITY AND AGRICULTURAL SECTOR RESPONSE TO RANDOM OIL PRICE SHOCKS IN NIGERIA (1974-2010)

ABSTRACT

The question of variability/instability in staple food prices and the effect of oil price shocks on the export and import of agricultural commodities is topical because it has generated tremendous interest among economists for decades. However, the basic challenge currently confronting Nigerian agricultural sector is therefore related to the problem of variability/instability in staple food prices resulting from the poor performance of the agricultural sector due to oil price shocks. On that basis, the study investigated staple food price variability and agricultural sector response to oil price shocks in Nigeria. Two models were estimated one for agricultural import and the other for agricultural export. For the agricultural import, we estimated for VEC while a VAR analysis is carried out among six key macroeconomic variables: real oil price, real gross domestic product, real exchange rate, crude oil production, money supply and the volume of agricultural import and export. The price data was collected for a period of 216 weeks i.e four years from the six markets of the zone. The study made use of trend analysis, coefficient of variation, Arch/Garch. The results from the various analyses provided empirical evidence of the extent and pattern of the food price variability in the region. The dissertation revealed that (i) the prices of agricultural and a manufactured/industrial foodstuff fluctuate overtime and space and it serves as a threat to food security in the zone (ii) volatility persistence in the markets for agricultural product is more frequent than in the markets for manufactured/industrial foodstuffs; (iii) the response of oil price shock on agricultural import was positive meaning that increase in oil price lead to increase in the importation of agricultural commodities while indicates negative response of oil price shocks on agricultural export. The study concluded that agriculture in the region is at crossroads, that the current high food prices have added impetus for the North-West region in particular and Nigeria as a whole to review its agricultural policies and programmes. It was concluded that frequent variation in the prices of foodstuff is a threat to both the producers and consumers in the North-West zone of Nigeria. The study further concluded that frequent increases in the prices of goods especially food serve as a sources of poverty to consumers, because it reduced their purchasing power and consumption which as a result lead to food insecurity.

AN EMPIRICAL ANALYSIS OF STAPLE FOOD PRICE VARIABILITY AND AGRICULTURAL SECTOR RESPONSE TO RANDOM OIL PRICE SHOCKS IN NIGERIA (1974-2010)