Hectarage and Output Responses of Major Crops to Market Liberalisation and Price Risk in Nigeria

Abstract

Liberalization is part of the ongoing domestic market reforms and globalization policies that redefined government responsibility and actions, which affect agricultural development, and the welfare of farmers. This study examined hectarage and output responses of major crops to market liberalization, price risk and financial support. The objectives were to describe trends of output, hectarage and prices of these crops, as well as describe trends of non-price factors and estimate the effects of these factors on hectrage and output of selected crops. The study covered a period of 38 years from 1970 to 2007. Secondary data were obtained from the Food and Agriculture Organization (FAO) Statistics Data Base, Publications of Central Bank of Nigeria, (CBN) and National Bureau of Statistics. Data were analysed using descriptive statistics and seemingly unrelated regression model estimation. The descriptive statistics results showed that output of rice was the lowest among the cereals. It ranged from 403,000 to 4,165, 070 tonnes. Fluctuations that characterise nominal prices also marked the price risks. The nominal price risks for maize, rice and yam were the highest among the carbohydrate staples from 2005 to 2007. Time series property analysis showed that the variables satisfied criteria for estimation of ECM for the hectarage allocations and output estimates. Regression analysis showed that the coefficient of determination for hectarage and output equations accounted for about 80% and 85% of variation in hectarage and output of the majority of the crops. Price and price risks were major determinants of hectarage allocation and output of the crops. Real exchange rate had positive relationship with hectarage of yam but negative relationship with output of beans, cocoa and coffee. Volume of rainfall had positive relationship with the output of rice, yam and cocoa beans but a negative relationship with those of maize, sorghum and oil palm. Ten percent increase in rice price will lead to about 16 and 24 percent increases in its hectarage and output, respectively. Sorghum showed a similar pattern only that an increase in its output was 9 percent, which was less than that of rice. It was recommended that farmers should cultivate crops such as rice, maize, cassava and yam have positive relationship with the liberalization exercise. The Government should continue to attract FDI since it had positive impact on output of rice, yams, beans and cotton coffee and oil palm as well as increase funding of ACGSF since it had positive impact on hectarage of rice, maize, cassava, groundnut, and oil palm. Nigerians should redirect their taste to local foodstuffs and goods made from local agricultural raw material to limit the effect of market liberalization through substitution with imports. This is because the consumption of imported food products, which has local substitutes, limits demand for local production, which will, results in low hectarage allocation and subsequently lower output.