Benue State University, Makurdi

Analysis of the Response of Agricultural Export Commodities to Price and Exchange Rate Reforms in Nigeria, 1986 -2007

NJIFORTI Peter (Ph.D)

Abstract

This paper investigated the extent to which price and exchange rate reforms have affected the output, prices and export supply of selected agricultural export commodities in Nigeria. The Nerlovian adaptive expectation model was adapted for analysis following the work of Njiforti (2005) and Kwanashie et al (1998a and 1998b). Cocoa, coffee, palm kernel, palm oil, cotton and rubber were selected to represent agricultural export commodities (tradables). The analytical framework constituted of three blocks (the output block, price block and export supply block). Each of the block consisted of set of regression equations for the selected tradable agricultural crops. The estimation result in block 1 indicated that, the individual crops had different patterns of responses to policy instruments. The estimated elasticity coefficients were generally low; the short-run elasticities for all the crops were lower than the long-run values. This finding was somehow expected as most cash crops production need longer gestation period to maturity. The characteristics of each crop are different, the climatic conditions and spatial distribution are also different. In block 2 (ie price block), the nominal exchange rate variable was significant at 1% probability level in all equations. This indicated that the nominal devaluation of the Naira/US$ exchange rate had positive impact on absolute domestic prices of the selected tradable commodities. Devaluation of the naira gave rise to increase in foreign demand for domestically produced goods. This subsequently gave rise to increase in their prices, given the short run inelastic supply of these commodities. Increase in their prices subsequently gave rise to increase in output as abandoned coffee and cocoa farms were revisited, and new investors came into farming to take advantage of these high prices. In block3, (export supply block), cocoa and cotton responded significantly and positively to price variable. The coefficients for Palm produce, rubber and agroprocessed commodities were not significant. Estimates of the short run export elasticities were noted to be very low for the commodities investigated. In addition, they were lower than their long run counterparts. Cotton had higher elasticity values for the export crops both in the short run (1.005) and long run (1.148) respectively. The high elasticity response of cotton export was due to the short gestation period for cotton production. Based on the findings in this paper, liberalization of price and exchange rate were not able to boost the output of the selected export commodities as anticipated. The export reform structure was not adequate for Nigeria. There is the need for more problem oriented programme to boost Nigeria agricultural export commodities. To overcome the export constraint problems, Nigeria should bid for strategic advantage position in world trade to compete favourable in the international scene.

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