Effect of Agricultural Subsidies on Food Production and Prices in Nigeria: 1980 – 2024

This study analyzed the effect of agricultural subsidies on food production and prices in Nigeria from 1980 to 2024, with the broad objective of determining their short-run and long-run impacts. The specific objectives were to analyze the trends, examine the long-run relationship, determine the short-run and long-run effect and analyze the causal relationships between agricultural subsidies, agricultural GDP, and food prices. The methodology employed time-series data and the Autoregressive Distributed Lag (ARDL) model, complemented by the Granger causality test. The main results revealed that all variables exhibited fluctuating trends over the study period. The unit root test (Table 1) established that agricultural GDP and food prices were stationary in first differences (I(1)), while agricultural subsidies were stationary at the level (I(0), justifying the use of the ARDL approach. The bound test (Table 2) and the error-correction model (Table 3) confirmed a significant long-run relationship with disequilibrium correcting at annual rates of 26.02% and 25.18% for agricultural GDP and food prices respectively. The short-run estimates (Table 4) showed that a 1% increase in subsidies led to a 0.99% increase in agricultural GDP and a 1.12% decline in food prices. In the long run (Table 5), a 1% increase in subsidies led to a 0.067% rise in agricultural GDP and a 0.042% fall in food prices. The Granger causality test (Table 6) indicated a unidirectional causality running from agricultural subsidies to both agricultural GDP and food prices. The trend analysis (Figures 3, 4, and 5) visually depicted the historical fluctuations of the key variables. The study concludes that agricultural subsidies are a significant driver of increased agricultural output and reduced food prices in Nigeria in both the short and long run. It is recommended that the government should enhance and sustain transparent agricultural subsidy programs, use subsidies to lower input costs for farmers and implement protective trade policies to stabilize the agricultural goods and services market and promote sustainable growth.