The Impact of Exchange Rates and Inflation on Agricultural Output: Compelling Evidence from Nigeria

Nigeria's agricultural subsectors are highly sensitive to macroeconomic instability, yet there is limited research examining how exchange rate fluctuations and inflation affect each subsector individually. This study examined the effects of exchange rate and inflation on agricultural output in Nigeria between 1981 and 2022. The data for the study were obtained from the Central Bank of Nigeria Statistical Bulletin (2022) and analyzed using the Fully Modified Ordinary Least Squares (FMOLS) estimation. Empirical results revealed that inflation had a direct and statistically significant effect on crop, livestock, and fishery output. Specifically, a 1 percent increase in consumer prices raises crop output by 6 percent, livestock output by 9 percent, and fishery output by 6 percent, while its effect on forestry output was insignificant. The result also shows that a 10 percent increase in exchange rate reduced crop output by about 5 percent. Interest rates also inversely affected forestry output, though their impact on other subsectors is weak and mostly insignificant. The findings show the sensitivity of Nigeria's agricultural sector to macroeconomic instability, particularly exchange rate volatility. Based on these results, the study recommends stabilizing the naira through effective exchange rate management, providing targeted support to farmers to cushion the effects of inflation, and ensuring access to affordable credit for agricultural producers.