The Nigerian economy: Response of agriculture to adjustment policies

This study estimated price and non-price supply response coefficients for nine individual crops, sub-sectoral aggregates and commodity exports using the two-stage least squares (TSLS) and seemingly unrelated regression method (SURM) as tools for evaluating the effects of sub-sectoral aggregates on Nigerian agriculture. The estimates confirm two results in the supply response literature: (1) short-run price elasticities of individual crops are smaller than the long-run elasticities and (2) commodity sub-sectoral aggregates do not respond significantly to prices as individual crops. The results also show that the responses of food crops are sensitive to Nigeria’s agro-climate and the traditional cropping patterns of Nigerian farmers, who are mainly smallholders. Moreover, individual crops and sub-sectoral aggregates do not respond significantly to capital expenditure on agriculture (CEA), possibly because of action lags, weak choice of agricultural infrastructures and corruption. Non-tradeable crops are more sensitive to the SAP dummyfor institutional change (D2) than to the price support and food import dummy (D1). However, the SAP dummy is likely to indicate the effects of the reverse flow of labour from urban to rural areas following the down sizing that accompanied SAP. This is because food (cassava, millet and groundnut) and cotton (consumed mainly by domestic textile companies) are the only crops that have significant and positive response coefficients. Finally, commodity exports are positively sensitive to terms of trade. The results point strongly to two conclusions. First, the significant sensitivity of crops to price incentives is not sufficient to generate desired aggregate response. This result is consistent with the findings of the supply response literature and suggests that structural adjustment is more likely to affect the distribution of farm incomes than agricultural productivity and growth. Second, the sensitivity of commodity exports to terms of trade implies that external and, hence, exogenous factors play a critical role in the path of exports. Therefore, getting domestic prices of commodities right would not be sufficient to expand the foreign revenue from commodity exports. This is also consistent with the consensus in the 1970s about the international commodity price and the well-established neoclassical propositions about the short- and long-run paths of commodity prices and income under conditions of free enterprise. The results suggest that price incentives, shorter policy lags, more efficient infrastructural support to smallholder farm households, and less corruption in the design and implementation of agricultural policies would raise the production possibility frontier of farmers, who make up over 60% of employed Nigerians. Food should be at the core of a socially optimal Nigerian agricultural policy because it has the strongest potential for structural transformation of the economy and better price and policy responsiveness than tradeable crops.