-

~

-oi

THE EFFECTS OF TRADE ANDEXCHANGE RATE POLICIES ONAGRICULTURE IN NIGERIA

T. Ademola Oyejide

-

---."-

!o"'-

::i!

~ The International Food Policy Research Board of Trustees, Institute was established in 1975 to identify"'~~ and analyze alternative national and inter- Dick de Zeeuw

national strategies and policies for meeting Chairman, Netherlandsfood needs in the world, with particular em-

Ralph Kirby Davidsonphasis on low-income countries and on thepoorer groups in those countries. While the Vice Chairman, U.S.A.

....~research effort is geared to the precise ob· Eliseu Roberto de Andrade Alvesjective of contributing to the reduction of Brazil

~

hunger and malnutrition, the factors involvedare many and Wide-ranging, requiring ~naly- Yahia Bakour

w sis of underlying processes and extending Syriabeyond a nal'rowly defined food sector. The

Lowell S. HardinInstitute's research program reflects world-wide interaction with policymakers, adminis- U.S.A.

trators, and others concerned with increasing Ivan L. Headfood production and with improving the Canadaequity of its distribution. Research resultsare published and distributed to officials and Nurul Islalllothers concerned with national and inter- Bangladeshnational food and agricultural policy. Anne de LattreThe Institute receives support as a con· Francestituent of the Consultative Group on Inter- James R. McWilliamnational Agricultural Research from a number Australiaof donors including the United States, theWorld Bank, Japan, Canada, the United Philip Ndegwa

---.:~ Kingdom, Australia, the Ford Foundation, KenyaNorway, the Federal RepUblic of Germany,

Sab' ·0 OkitaItaly, the Netherlands, India, Switzerlan\.o.the Philippines, the People's Republic of JapanChina, and the International Development Sukadji RanuwiharcijoResearch Centre (Canada). In addition, a Indonesianumber of other governments and institu-tions contribute funding to special research Samar R. Sen

~.. projects. India

L-:>opoldo SolisMexico

Charl~s Valy TuhoIvory Coast

John W. Mellor, DirectorEx Officio, U.S.A. ::

-~

THE EFFECTS OF TRADE ANDEXCHANGE RATE POLICIES ONAGRICULTURE IN NIGERIA

T. AdemQla Oyejide

Research Report 55International Food P~~icy Research InstituteOctober 1986

-..c

",--------_._----------------------------------..,.,._-Copyright 1986 International Food PolicyResearch Institute.

All rights reserved. Sections of this report maybe reproduced without the express permissionof but with acknowledgment to the InternationalF"od Policy Research Institute.

Library of Congress Catalogingin Publication Data

Oyejide, T. Ademola.The effects of trade and exchange rate poli­

cies on agriculture in Nigeria.

(Research report; 55)Bibliography: p. 59.I. Agriculture and state-Nigeria. 2. Nigeria­

Commercial policy. 3. Foreign exchan~p admin­istration-Nigeria. 4. Nigeria-Economic policy.I. Title. II. Series: Re~earch report (InternationalFooe! Policy Research Institute) ; 55.

HD2145.5.094 1986 338.1 '09669 86·21309ISBN 0·89629·056·5

1

...

..

CONTENTS

Foreword== 1. Summary 9

'\ill2. Introduction II

3. Structure and Growth of NigerianAgriculture 13

4. Survey of Economic Policies 23

5. Agricultural Price Imerventions and ~

and Incentives 28

6. Agriculture and the Dutch Disease 33~

7. Effects ofTrade and Exchange RatePolicies 42

8. Conclusions 51

Appendix: Supplementary Tables 54IE'

Bibliography 59i.

-I

...

TABLES

.-- IS. Exchange and rural wage rates,I. Minimum and rural wage rates,1970-82 17 19/0-82 41

2. RelativE: domestic food crop prices, 16. Regression results for total exports 471982 20

17; Regression results for agricultural3. Relative prices of agricultural out- exports 48

put, 1950-57 2018. Regression results for oil exports 48 =-

4. Relative prices of agricultural19. Regression results for cocoa ex- 1-

crops, 1960-69 and I970-82 21ports 49

- 5. Ratios of domestic prices to inter-20. Regression results for groundnu~national prices for selected agri-

cultural crops, 1979-82 29 exports 49

6. Nominal rates of protection for se- 21. Regression results for palm kernellected agricultural crops, 1979-82 30 experts 50

7. Effective rates of protection, se- 22. Range ofvalues for omega estimates 50lected agricultural crops, selected 23. Explicit, implicit, and total taxesyears, 1960-82 31 on cocoa, groundnuts, and palm

8. Cnanges in sectoral contributions kernel exports, 1979-82 50to outpu., employment, and ex- 24. Producer prices of major agricul-ports, 1970 and 1982 37 tural crops, 1963-82 54

9. Effects of sectoral shifts on output, 25. Output indexes of major agricul-1970-82 38 tural crops, 1965-80 54

10. Effects of sectoral shifts on exports, 26. Indexes of domestic prices of ma-1970-82 39 jor food crops, 1965-80 55

I I. Effects of sectoral shifts on employ- 27. Price indexes for selected exportment, 1970-82 39 crops, 1960·82 55

12. Components of sect.oral shifts in 28. Index of agricultural production,output of the Nigerian economy, 1975-82 561970-82 40

13. Components of sectoral shifts of29. Guaranteed minimum prices for

food crops, 1976·82 56employment in the Nigerian txon-omy, 1970-82 40 30. Domestic price indexes, 1960-82 57

14. Real prices of exports and terms 3 I. Supplementary regression resultsof trade, 1970-82 40 for aggregate exports 58

-j

J =

ILLUSTRATIONS- -o. ..

I. Nominal wage rates and consumer --

price indexes, 1970-82 17

2. Indexes of real minimum and realrural wage rates, and consumer price 11'_

index, 1970-82 18l..

- 3. Food and export crop prices, 1970-82 22

OL-

--4. Spending effect of a resource boom 35

l'-

--~

~..

.. FOREWORD

The past decade has been one of majorturbulence in the global economy, includingrapid inflation, oil price shocks, extraordi­nary rise and decline in food prices, andlow real interest rates encouraging borrow­ing that has later proven unsustainable. Theprocess of managing that turbulence, alongwith industry-oriented development strate­gies, has led many developing countries togrossly overvalue their exchange rates. Theextent to which overvaluation discriminatesagainst exports and agriculture in generaland agricultural exports in particular hasreceived increasing emphasis in recent years.

Thus, the International Food Trade andFood Security Program at IFPKI has under­taken a series of country studies on the for­eign trade and exchange rate regimes asthey relate to the structure of incentives foragriculture in developing countries.

IFPRI's comparative studies on this topichave included The Effects ofExchange Ratesand Commercial Policy on Agricultural In­centives in Colombia: 1953-1978, ResearchReport 24, by jorge Garcia Garcia, "CoffeeBoom, Government Expenditure, and Rela­tive Prices in Agriculture: The ColombianExperience," also by jorge Garcia, withGabriel Montes, and Agriculture and Eco­noft1ic Growth in an Open Economy: TheCase of Argentina, Research Report 36, byDomingo Cavallo and Yair Mundlak. Researchunder way includes parallel studies on Zaire,the Philippines, Chile, Peru, and Thailand.

This research report, a part of that larger,in tegrated effort, focuses on Nigeria, a majoroil exporter. The development of a boomingexport sector, such as oil in the I970s, islikely to have strong repercussions on thecompetitiveness and growth of OthtOf trad-

able sectors in the economy, agriculture be­ing particularly affected because it is moretrade-oriented than other sectors. Thus Ni­geria presents an opportunity to learn froman important example of a particular typeof regime.

IFPRI is organizing a policy workshopto take place in 1987 where this series ofcountry studies on the effects of foreign tradeand exchange rctte policies on agriculturalgrowth will be presented. These studies willprovide abread picture of the process throughwhich trade and exchange rate policy in­fluences agricultural growth in developingcountries, and they will provide supportingquantitative evidence of their relative effects.

Professor T. Ademola Oyejide, from theDepartment of Economics, University ofIbadan, came to IFPRI as a visiting fellowto work on this study on Nigeria. Becauseof his experience in trade and exchange ratepolicy in Nigeria, including his well-knownstudy on the structure of industrial protec­tion, and his knowledge of the agriculturalsector, he is particularly qualified to developthe analytical framework and implement theempirical analysis.

This study was partially funded by theFord Foundation's office in Lagos, Nigeria,and by the International Development Re­search Centre of Canada. IFPRI is particu­larly grateful to these two organizations fortheir encouragement and support of thiswork on Sub-Saharan Africa.

john W. Mellor

Washington, D.C.October 1986

- ACKNOWLEDGMENTS--------_-..._--------_...._-_.•----_..-_------------

-,-0

..

This study is part (If a series dealing withthe :mpact of trade and exchange rate policiesor agricultural incentives in several coun­tries. It was funded by the International FoodPolicy Research Institute (IFPRI), the Inter­national Development Research Centre(lDRC) of Canada, and the Ford Foundation.It is a great pleasure to acknowledge the gen­erous financial support of these organizations.

Work on the project was carried out atIFPRI and the University of Ibadan, both ofw~ich provided a conducive atmosphere forwork. However, my teaching and adminis­trative responsibilities as he:,: of the Depart­ment of Economics at the Urll'lersity of Ibadancreated unavoidable distractions and delaysthat must have sorely tried the patience ofmy colleagues at IFPRI.

John W. Mellor, director of IFPRI, main­tained a sustained and lively interest in thisresearch project throughout its duration.His general encouragement and incisivecomments have been valuable in shaping

its overall direction. Alberto Valdes, the proj­ect leader, oft'ered useful comments, sug­gestions, and criticisms at every stage of theresearch. His ability to succinctly articulatepolicy iss'Jes and link them with a relevanttheoretical framework and analytical tech­niques assisted me immensely and is grate­fully acknowledged.

I am also indebted to Larry Sjaastad,Romeo Bautista, Tshikala Tshibaka, andChris Delgado, with whom various aspectsof this study were discussed.

My deep appreciation for competent com­putational assistance, pleasantly provided,is due to Steve Haykin,

Finally, my greatest debt is to the mem­bers of my family: Tinuke, Dayo, Dunmomi,Dotun, and Diran. They sustained me andat the same time selflessly allowed me tobe away as oftt:n as my research commit­mer.'s required. Much more is owed tothem than can be conveyed in this acknowl­edgment.

•

••

•

- ...

.iii~!

=

-''11

1SUMMARY

Before the 1970s agricultural exportswere the bnckbone of the Nigerian econ­omy. By the mid-1970s, however, two phe­nomena caused the average annual growthrate for export crops to decline by 17 per­cent, food crop production to fall by 2 per­cent, and domestic retail food prices to soar.The first was ,he economic boom resultingfrom the dramatic rise in oil prices, and thesecond, government policies to encourageindustrialization. At a time when GDP wasgrowing by more than 7 percent a year,resources shifted away from agriculture_

This study focuses on the effects of Ni­~eria's trade and exchange rate policies onagricultural incentives during 1960-82, espe­cially during the 1970s, the period of the oilboom. It <:ttempts to r,etermine the degreeof protection grililced to agriculture com­pared with other sectors, and it assesseshow these policies affected the ailocation ofresources both wi,hin agriculture and amongthe other sectors.

Nigeria's development strategy assignedagriculture the role of a resource reservoirfor other sectors during the 1960s. Trade,exchange rate, and other macroeconomicpolicies were designed and implemented toextract rp.sources from agriculture for thedevelopment of manufacturing and its infra­structure. The oil boom of the 1970s onlystrengthened :his policy of transferring re­sources.

Despite its decline, agriculture is stillone of the largest sectors in the economy.In 1982 it still accounted for 59 percent ofthe labor force, down from 75 percent. Be­cause Nigerian agriculture is labor-intensive,labor shortages represent the IT.v~( signi f .icant constraint to growth. Rural wages roseae:; the result of rural-urban migration at atime when prices paid to farmers were de­clining.

Before the 1970s the consumer priceindex for food and the relative food cropprices paid to farmers largely moved to-

gether, but during the IQ70s they began todiverge. Retail food prices rose 18 percenthigher than other costs, while producerprices declined relative to the consumerprice index.

Late in the I070s, the need to diversifythe economy brought about a policy rever­sal. Agricultural production was encouragedby the removal of agricultural export andsales taxes and by increased tariffs and banson agricultural imports. Agricultural inputs,particularly fertilizers, were subsidized. By1982, al! export crops, except cotton, andall food crops were positively protected.

Exchange rate policy is particularly aproblem in boom countries like Nigeriawhere large capital inflows cause the realexchange rate to appreciate in favor of thedomestic currency. But policies to keep thereal exchange rate low may impede thegrowth of agricultural exports. Between1974 and 1978 Nigeria allowed the nairato appreciate against the U.S. dollar and theBritish pound, and the resulting overvalua­tion substantially reduced production incen­tives for nonoil tradables, fJarticularly agri­cultural products.

Other trade policies initiated to correctimhalances limit imports to th~ amount offoreign exchange earned throllgll p.xports.Ouantitative import licenses and exchangecontrols are costly and complex to adminis­ter, however, and encourace governmentcorruption.

Trade and exchange rate policies influ­ence production :~(e:ltives, which in turnaffect the flow of resources among sectors.When onE: sector is protected, another sec­tor is likely to suffer adverse consequenc~s.

In this study an incidence of protectionparameter, called omega, measures the ef­fects of protectionism and how the effectsare shared among sectors. For example, thestudy shows that an import tariff resultedin a 55-90 percent tax on exportables, in­cluding agric1Jlturai exports.

9

II:

11"

The study concludes that the oil boomadversely affected Nigeria's agriculture. Butchanges in detrimental trade and exchangerate policies alone will probably not bringabout a sufficient expansion of agriculturaloutput. I~or is agricultural price interven­tion alone likely to solve agriculture's prob·

10

lems. Such changes must be accompaniedby programs to develop and distribute newtechnology, rural infrastructure, and otherrural investment. Most importantly, policy­makers must consider the effects on otherse~tors bdore implementing policies to sup­port gro'l·/th in one sector.

2Il'ITRODUCfION

Although developments in the oil sectorhave dominated Nigeria's economic scenesince the mid-1970s, the country remainsbasically agricultural. More than 70 percentof its population depends on agriculture,which contributes roughly 25 percent ofGDP and 60 percent of nonoil exports. Infact, before the rapid rise in oil prices andthe massive increase in oil export revenue,Nigeria was a major exporter of agriculturalproduce, especially cocoa, groundnuts, cot·ton, palm oil, palm kernel, and rubber. Sincethen, however, both the volume and therange of agricultural exports has declinedsharply, and agricultural imports have in­creased dramatically. In addition, Nigeriano longer produces sufficient food for thecountry's large and rapidly growing popula·tion.

The 3-4 percent average annllal outputgrowth rates for agricultural export and foodcrops achieved in the 1950s and j 960s gaveway to substantial declines throughout the1970s and into the early I980s. The averageannual rate of real output growth for foodcrops fell to about 2 percent i! year duringthe 1970s. Between 1970 and 1975, how­ever, the output of export crops dropped17 percent, and by 1982 export crop CJutputhad declined by more than 20 percent. Re­flecting the dismal performa'lce of Nigeria'sagricultural sector, the food import bill rosemore than IO-fold in 1970-80, and domesticfood prices also rose dramatically.

In contrast to the poor output growthperformance of the agricultural sector, theaverage annual real GDP growth rate wasmore than 7 percent during 1070-80. Thisreflecteci the rather swift recovery from the1967-70 civil war, cumbmed with the et·fects of the oil boom, partiCUlarly in 1973·75and 1979-80. This overall growth rate wasnearly double the rate of about 4 percentduring the 1950s and the 1960s.

Several macroeconomic policies andevents presumably have contributed to theextraordinary decline of Nigeria'r, agricul­tural sector at a time of high overall growth.A major factor i~, Nigeria's whole-heartedembrace since the 1960s of the import-sub­stitution-industrialization strategy so popu­lar among the developing countries. Underthis scheme, domestic manufacturing in­dustries have received high levels of pro­tectiun ,through tariffs and other quantitativeimport restrictions. Although this haS pro­vided large incentives for industry, it hashad the opposite effect on other sectors,particularly agriculture. A second majorevent has been the oil boom with its associ­ated capital inflows. This has helped to estab­lish an exchange rate regime that sustainsan overvalued domestic currency, which hassqueezed nonoil tradables, particularly agri­cultural commodities.

Several important policy issues areraised by the disincentive effects on agricul­tural production-both for export and fordomestic consumption-of major macroec­onomic policies, particularly trade and ex­ch"nge rate policies. Some of these issuesare general in the sense that they pose ques­tiuns about the global impact of these poli­cies on production incentives. Others relateprimarily to the different effects of policieson production incentives across and withinsectors of the economy.

The objectives of this study derive fromthese policy concerns. More specifically, itattempts first, to establish, in terms of rela­tive prices, the degree of protection ac­corned by trade and exchange rate policiesto agriculture vis-a-vis other sectors of theeconomy; second, to assess how trade andexchange rate policies affect the allocationof resources among sectors and within agri­culture itself, particularly in the productionof food and export crops; and finally, to ex-

I I

amine how a dominant sector, petroleumoil, hilS affected production incentives inagricl.!1" ,.'~.

;lccam'" of significant data limitations,it has not ileen possible to provide definiteanswers to some of the important questionsraised in this study. But until more detailed

12

sturiies b<lsed on better data are available,this study dpmonstr'ates the effects on aBri­culture of ecohJmywirJe trade and exchangerate policies and t\.o: extent to which the"oil syndrome" has adversely affected bothfood and export crop components of agricul­ture.

"'"

..I

•

3STRUCTURE AND GROWTH OF NiohRlANAGRICULTURE

Agriculture has always been a large sec­tor of Nigeria's economy. I In ! 950, it ac­counted for 69 percent of GDP, but its shareof GDP fell rather rapidly to only 49 percentin 1970 and to about 22 percent in 1982.But agriculture has continued to be the mostimportant employer of labor, accounting for64 percent of the total labor force in 1975,and 59 percent in 1982. The performanceof this sector remains critical tn the econ­omy's overall growth.

Agriculture has important linkages andinterrelationships with the rest of the econ­omy.2 As in most other developing countrieswhere agriculture is a large sector of theeconomy, Nigerian agriculture interactswith, and is highly vulnerable to, changesin other sectors. This includes macroeco­nomic policies not specifically targeted atagriculture.

Nigeria's developmt:nt strategy of the1960s and 1970s treate,l manufacturing in­dustry as the leading sector, whereas agri­culture was assigned the role of a reservoirthat prOVided resources fOl' or absorbedthem from other sectors (particularly indus­try) as required. The central question in thisstrategy was how to extract an adequatesurplus from agriculture to finance indus­trial growth and how much food and laborcould be transferred from agriculture with­out destroying the sector's capacity for con­tinued, self-sustained growth. 3 This strategyimplied a number of potential conflicts. The

need for increased domestic food produc­tion may work to the detriment of the objec­tive of inLreased foreign exchange earningsthrough the expansion of the output of ex­port crops, particularly where food and ex­port crops are produced in the same produc­tion structure. Similarly, when agricultureis heavily taxed to generate the savings forfinancing industrial capital formation, realfarm income and production incentives inagriculture are reduced. As a result, the re­quired expansion of output of food and ex­port crops may not be achievable.4

The implied trade-offs in general macro­economic policy objectives illustrate the im­portance of linkages between agricultureand other sectors of the economy. They alsoestablish the need for a careful analysis ofthe structure and growth of agriculture overtime in relation to general macroeconomicpolicies to determ ine whether these policiesassist in creating an environment in whicha\Sriculture would serve as a resource reser­voir while sustaining itself.

Structure and Performanceof Agriculture

The national accounts of Nigeria includefour agricUltural subsectors-crops, live­stock, forestry, and fishing. This study isconfined to the agricultural crops subsector,which accounts for 70-80 percent of total

I Appropriate data For measuring the relative significance of agriculture in Nigeria's economy are available FromNigeria, Federal OFFice of Statistics, Natiunal Accounls of Nigeria (Lagos: FOS, 1978); and Nigeria, Federal Officeof Statistics, EcoMmics and Social Statislics Bulletin (Special Series I, january 1984.2 See Bruce F. johnston and john W. Mellor, "The Role of Agriculture in Economic Development," AmericanEconomic Review 51 (September I WJ I): 566·593.I See Food and Agriculture Organization of the United Nations, AgricultlJr.11 Development in Nigeri,1, 1965·1980(Rome: FAO, 1986).•1 An earlier study of this conflict is reported in Godwin E. Okrume, Foreign Trade and ti,e Subsistence Sectorin Nigeria: Tile Impact of Awicultural rxports un Domestic Food Supplies in a Peasant Economy (New York:I'raeger, Fn31.

13

agriculture. The crops subsector has twomajor subdivisions, crops produced for do·mestic consumption and those produced forexports. This J" .J~d classification j;; not ex­clusive. Some of the traditional export cropshave also been used for domestic food.Examples include palm oil, tea, coffee, andgroundnuts, particularly in the form ofgroundnut oil. In fact, some have cirfl:lpedout of the list of export crops in more recenttimes, partly as a result of the decline intotal production but also because of in­creased domestic demand for their use asfood. Thus, agricultural exports as a propor·tion of total exports fell from 97 percent to4 percent from 1960 to 1980.

Traditionally, the major export crops in·clucie cocoa, groundnuts, palm kernel, palmoil, rubber, cotton, coffee, tea, and soy­beans. By the 1980s, cocoa was providingmore than 50 percent of total agriculturalexport earnings. Domestic demand alsoexists for some of the exportable crops suchas cocoa and cotton, as industrial raw mate­rials. 5 The food crops category also is notexclusive because it includes both tradedand nontraded food crops. The major tradedfood crops are maize, rice, and wheat. Otherfood crops include root crops such as yams,cassava, and cocoyams, as well as severaltypes of grains, such as millet and sorghumand pulses. Many of these are potentiallytradable. Hence, incentives for their produc­tion and consumption are significantly influ·enced by traded foC'd prices.

There is considerable disagreementamong the different data sources about theactual amounts and growth rates oi agricul'tural crops produced in Nigeria.6 As a result,available estimates diverge Widely. The dif·ferences are particularly large for the non·

traded root crops, including cassava, yams,and cocoyams. There is also reason to sus­pect that the production figures for export­able crops may be underestimated, becausethe share of crops that are domestically con­sumed, such as palm oil and groundnuts, isnot known wit;. a reasonable degree of cer­tainty'?

Because of Lhese problems, it is not pos·sible to provide generally accepted figuresthat demonstrate the structure and perfor­mance of Nigerian agriculture in a definitiveway. In spite of this reservation, the follow­ing is an attempt to sense the general trends.The national accounts indicate that during1950-57, GOP grew at 4.0 percent, during1960-66 at 4.7 percent, and during 1970­75 at 8.4 percent per year in constant prices.During these same periods, the output ofagricultural crops grew 3.2 percent, 1.3 per­cent, and -3.6 percent per year. Teal hasproduced revised estimates for these pe­riods showing the growth patterns of exportand food crops separately.a According tothese estimates, the output of export cropsgrew at an average annual rate of 4.7 per­cent in 1950-57, 7.4 percent in 1960·65,and declined by 17.3 percent ill 1970-75.The corresponding average annual growthrates for food crops were 3.2 percent, 0.4percent, and -2.1 percent. The generaltrend implicit in these figures is that totalreal output of agricultural export crops de­clined at an annual rate of about 30 !icrcentduring the period 1973-82. For the foodcrops, however, Norton estimates that do­mestic production probably grew at an aver­age rate of 2.7 percent, which is no growthat all on a per capita basis fer 1973-82.9 Inother words, the growth performance ofNigerian agriculture \;orsened between

:..

=

:..

\ Nigrria, Federal Office of Statistics, National Accounts of Nigeria.b Dald sources include the following agencies in Nigeria: Federal Office of Statistics, which has primary responsi­bilit·! for all offici31 data gathering, processing, and publication; Federal Ministry of Agriculture; and Central Bankof Nigeria. Sources outside Nigeria ar" 'he Food and Agriculture Organization of the United Nations and the U.S.Department of Agriculture.7 See Francis Teal, "The Supply of Agricultural Output in Nigeria, 1950·1974," journal of Development Studies19 (January 19831: 191·206; and M. O. Ojo, "Food Supply in Nigeria, 1960·1975," in Central Bank of Nigeria,Economic and Financial Review 15 IDecember 19771.B Teal, "Supply of Agricultural Output."Q See Roger D. Norton, "Pricing Policy Analyses for Nigerian Agriculture," West Africa Regional Office, The WorldBar'!;, September 1983 lmimeographed).

14

..,

=

1960 and 1982, with the rate of declinebeing particularly high since the mid·1970s.Domestic food production appears to havestagnated, especially since the mid·1970s,while output of export crops has fallenrather dramatically.

The trend in domestic agricultural cropproduction is reflected in the changing pat·tern of agr;,cultural trade. The transforma·tion of Nigeria from a net exporter of agri·cultural crops to a large·scale importer ofagricultural food products was particularlymarked during thE: period 1973·82. Exportearnings fell from 332 million naira (N) in1973 to about N120 million in 1982,10 asthe major f1gricultural export crops de·creased in number, output, and value. Incontrast, increases in income and changesin consumer taste boosted the import offood products. Imports of some grains, suchas wheat, rice, and maize, grew at an aver·age annual rate of more than SO percent,with the result that the value of agriculturalcommodity imports rose from about N126million in 1973 to well over N2,OOO millionin 1982. It would appear that traded cropsnow constitute a fairly large proportion ofNigeria's total food supply,

Constraints on AgriculturalGrowth

The economic performance of Nigerianagriculture has been influenced since themid·1970s by the structural changes in theeconomy that have accompanied the oil boom(see Chapter 5). The principal mechanismsthrough which the oil boom has affectedagriculture are the relative product and fac­tor prices.

Labor, land, capital, and water are theprimary resources used in Nigeria's tradi-

tional agriculture. Therefore, inadequaciesin the labor market, the land tenure system,technology, and infrastructural facilities rep­resent significant impediments to expand­ing agricultural output.

Research and development of improvedseeds, as well as the introduction of newtechnological packages through extensionservices and the provision of infrastructuralfacilities, accompanied the expansion ofagricultural export crops during the late1950s and early 1960s. Only recently havesimilar facilities been extended to the do­mestic production of food crops. In fact, aslate as 1969, major production programsfor food crops were considered unneces·sary.11 Although use of fertilizer and chern·ical inputs is spreading rapidly, it is stilltrue, by and large, that increases in foodproduction are based on the land and laborof the small·scale farmer who uses tradi·tional technology with rudimentary capitalin a rainfed system, just as in the past. Landdoes not constitute a binding constraint inthis system. It is estimated that cultivatedland totals 34 million hectares out of 72million hectares of potentially cultivatableland. 12 in fact, the predominant fallowingpractices are based on the existence of afairly large average surplus amount ofland. 13 In comparison to land, labor repre·sents a major constraint on the expansionof agricultural output in Nigeria'~ prevailingfarming system.

There has been a growing consensus inrecent years that labor shortages-and thecorresponding high costs of labor-haveplayed a central role in agriculture's poorperformance. 14 The problem of labor short·age is worsened by the unusually labor·intensive nature of Nigerian agriculture.Evidence shows that mixed crop farmingenterprises require more than 100 man·

10 In 1982, one Nigerian naira IN) was equivalent to U.S. S1.49.II See Consortium ror the Study or Nigerian Rural lJevelopment. Strategies and Recommendations Jar NigerianRura{ Development, 1969·1985ILagos: CSNRD, 19691.12 See Norton, "Pricing Policy Analyses," p. 2.16.I J The rallowing rarming practice is also rererred to as a system or shirting cultivation. See r.ood and AgricultureOrp,anization or the United Nations, Agricultural Development in Nigeria; and Consortium for the Study or NigerianRur;11 Development, Strategies and Uecommendations.'.1 See Carl K. Eicher and Doyle C. Baker, Research on Agricultural Development in Sub·Saharan Africa-A CriticalSurvey, International Development Paper No. I (East Lansing, Mich.: Michigan State University, 19821.

15

days per hectare per year and that laborintensity for root crop production reaches200 man-days per hectare per year. IS Macro­economic developments in the rest of theeconomy have contributed to the laborshortage problem of agriculture. Expandingoff-farm income-earning opportunities I ()

and the introduction of universal primaryeducation 17 in the 1970s boosted the rateof rural-urban migration, IB to the detrimentof the ~;;"icultural sector.

Another significant development is thein :reased dependence on hired agriculturallanor instead of family labor. IQ The macroec­onomic policies that have resulted in highrates of rural-urban migmticn have clearlycontributed to the incn"lsed need For hiredlabor on the Farms. This shift has tended toincrease explicit production costs in agricul­ture. In various Agriculture DevelopmentPrc"~cts (ADPsI located in the northern partof Nigel ia, the average Farmer spent aboutN200 on hired labor in 1981 to earn anaverage Farm income From crop sales ofabout N 500.20 In the southwestern part ofI<igeria, there is extensive reliance on con­tract harvesting with teams of hired laborcoming in regularly From other parts of thecountry. As a result, hired label' now repre­sents a much more signiFic;:;mt part of theFarmer's production cosb across the countrythan in th~ 1960s. Just as oFf-Farm workopportunitie,' have Forced Farmers to relymore on hired labor, the costs of hired laborhave risen in line with the rapidly increasing

urban wagz rate. This has created severepres~ures on Nigerian agriculture from thelabor cost side.

There are no official time-series data onrural wage rates. However, a series con­structed from available scattered point esti­mates and their implicit rates of growth overtime is presented in Table 1.21 When theindex of the estimated nominal rural wagerate is deflated using the index of consumerprices, an index of real rural wages is pro­duced. Asimilar procedure is used to derivethe real minimum wage rate index. It isclear From these estimates that both therural wage rate and the minimum wage rateincreased rapidly thruugh the 1970s andinto the 1980s (Figure I I. This rapid in­crease in the nominal wage rate is carriedover to the real rate. To the extent that tltenOl'1inal rural wage rate and the minimumwage rate hal"e grown much Faster than theconsumer price index, the indexes of realrural and minimum wage rates have beencharacterized by an upward trend at leastuntil 1975, when the rural wage began todecline (see Figure 2). The rate of groNthof the real rural wage rate was particularlyrapid during 1973-75, hilt it tapered oFF dur­ing 1975-82.

Given a land surplus, it is possible toincrease agricultural output by expandingcultivated area without a significant break­thrOl.:gh in yield technology. However, anincrease in area cultivated would have tobe worked with hired labor because the

=-

=

I \ Norton, "Pricing Policy Analyses."II' Off.farm income' earning opportunities have expanded, particularly during the 1970s, as the service sector hasgrown rather rapidly with the increase in income induced largely by the oil boom.17 Primary school enrollment increased from less than 40 percent to more Ihan 95 percent of school·age populationduring the 1970·80 decade.III No time·series data on the rate of rural·urban immigration are available. However, most observers believe thatthe rate has been high. See Eicher and Baker, Research on Agricultllral Development in Sub·Saharan Africa.I') In most other Sub·Saharan African countries. the use of hired labor is not extensive IEicher and Baker, Researchon Agricultural Del'elopment in Sub·Saharan Africal. In Nigeria, the pattern was roughly the same during the1960s, except at harvesting time when the use of hind labor might exceed 20 percent of total labor. See DavidW. Norman. Economic Analysis oj Agriruiiural Prod'/clion and Labor Utilization among the Hausa in the Northoj Nigeria, African Rural Employme~lt Paper No.4 (East Lansing, Mich.: Michigan State University. 19731.tlOwever, NorIan shows that a rnarkf!d shift toward greattr dependence on hired labor occurred during the 1970sINorton, "Pricing Policy Analyses").20 Norton's figures are b~sed on ~amples drawn from 10 agricultural development projects in Nigeria (Norton,"Pricing Policy Analyse" . p. 53).21 These include estimates of rural wage ral~s of NO.60 for 1970, N5.20 for I 97C), and N6.00 for 1982, asreported in Norton. "Pricing Polic'? Analyses."

16

:::;

Tabie I-Minimum and rural wage rates, 1970·82

Estimated Rural Minimum Consumer Real Rural Real MinimumRuralWagl:' Wage Rate Wage Rate i'rlce Wage Rate Wage Rate

Year Rate Index Index Indt!x Index Index

(naira/day) 119iO ~ 1001

1970 0.60 100 100 IOU 100 1001971 1.06 177 100 116 153 861972 1.52 253 100 119 213 841973 1.98 330 100 127 260 791974 2.44 407 :':37 144 283 2341975 2.90 483 337 16\ 300 2091976 3.36 560 561 198 283 2831977 3.82 637 561 231 276 2431978 4.28 713 561 269 265 20910,79 S.20 867 645 300 289 2151980 5.40 900 645 331 271 1951981 5.60 934 702 400 233 1761982 6.00 1,000 702 431 232 163

Sources: The rural w'\ge rate is constructed from scattered point estimates because there are no official time-seriesdata on wages. The minimum wage rate index is derived from budget documents provided by the Fedf!ralGovernment of Nigeria. Consumer prices were obtained from the Nigerian Federal Office oi St2tiStiC:iIn Lago;. The real rural wage and real minimum wage rates are obtained ty using the Index of consumerprices as a den~[Qr.

Figure I-Nominal wage rates and consumer price indexes, 1970-82

•

...

19828180

Minimum wage inrlex

797877

r--,..- --1I_______ .J

7675

II Consumer price indexI ••••• 1

I ............-J ....r---- ....11.·I ..I ••••••.....I ........l ............

74737271100 1IlIlU1.:ao"""'-_-.j,, "-_......._--L__.l-_--L._---I__...L-_--L._---IL...----I

1970

250

index

1,000

850

700

-550

400

Sources: The rural wage rate is constructed from scattered point estimates because there are no official time-seriesdata on wages. The minimum wage rate Indzx is derived from budget documents provided by the FederalGovernment of Nifpria. Consumer prices were obtained from the Nigerian Federal Office of Statisticsin Lagos.

17

Figure 2-lndexes of real minimum and real rural wage rates, and consumerprice index, 1970-82

Inde.500

Consumer price Index

..

..'......4...,

•••....••........•,,"••,,"

••."".."••I

I

1'....... /I ......JII

,, .'... ........:....', I~eal rural wage rate Index... .....- ............... ......... ........ ......... ~.. ~I ••.• ........

..... Real minimum wage index

I..........................

••••• I..... I-----J

100

400

300

;wo

1970 71 72 73 74 75 76 77 78 79 80 81 1982

Sources: The rural wage rate is constructed from scattered point estimates because there are no official time-seriesdata on wages. The minimum wage rate index is derived from budget documents provided by the FederalGovernment of Nig~rla. Consumer prices were obtained from the Nigerian Federal Office of Statisticsin Lagos. The real rural wage and minimum wage rates are obtained by using tl1~ inrfex of consumerprices as a denator.

18

-...

exis~ing land ter,ure system precludes large'scale mechanization. This is the sense inwhich labor and its rising costs representthe principal constraint on the growth ofNigerian agriculture.

Agricultural PricesA sufficit:!nt increase in output. prices

could, in principle, offset the high labor costsconfronting Nigerian farmers. Hence, an ex·amination of agricultural output prices isrequired.

GO'{ernment intervention in Nigeria'sagricultural marketing and pricing systemmake') a distinction between export and foodcrops even though a number of agriculturalcommodities belong in both categories. Ex­cept for these cases, export crops tradition­ally have had their marketing channels anddomestic produce price5 determined by thepolicies and operations of commodity boards.Through ~ime, Nigerian marketing (com­i.'i0Jity) boart:~ have played an importantrole in organizing the purchase and sale ofexport crops such as cocoa, rubber, ground­nuts, cotton, palm kernel, palm oil, and soy­beans.22 Producers are required by law tosell their crops at officially determined pricesto the commodity boards, which are thewle exporters of specified crops.

Intervention in food crops is much morelimiMd and started much later. Purchaseand sale is handled by the private sector.Government intervention is limited to set­ting official guaranteed minimum prices atwhich the appropriate commodity boardwould act as a buyer of last resort. Althoughmarketing boards for export crops emergedin the 19L1.0s, government involvement insetting gu ill'anteed minimum prices for foodcrops did not begin until the mid-1970s.

Traditionally, marketing boards havebeen used as fiscal agents in relation to pro­ducers of agricultural export crop:;. Farmers

have been paid well below world marketprices tor their crops. For example, the typ­ical Nigerian producer of groundnuts waspaid a price so low that it amounted to atax of approximately 68 percent in 1950,although the tax element was dov;n to about36 percent by 196523 and by 1982 appearsto have been completely replaced by sub­sidy. Since then, domestic producer pricesfor most export crops have been higher (atthe official exchange rate) than the corres­ponding international prices. On the aver·age, the ratio of domestic prices to interna·tional prices has been about 1.97.

GuaLmteed minimum prices are estab­lished for the following scheduled foodcrops: beans, maize, millet, rice, guineacorn, and wheat.24 Most nontraded foodcrops are excluded from this scheme. Theguaranteed minimum prices serve as abelow-market safety net rather than as afloo:. They are also often set at fixed levelsfor several years at a time. The result is that,in all cases, the farm-gate price has beenhigher than the corresponding guaranteedminimum price. Table 2 shows that for al·most all crops, the guaranteed minimumprice is less than 50 percent of the retailprice. It is a higher proportion of the farm­gate price, but even tht:n, it comes closeonly in the case of rice (about 92 percent).It is not surprising, therefore, that becausethe farmer is free to sell on the open market,the commodity boards purchase very littleof these commodities.

An examination of the evolution ofprices within agriculture and between agri·culture and t1' ':: overall economy for the1950s, the 1960s, and the period since1970 illustrates the impact of policy changesand other exogenous factors on inter- andintrasectoral price movements. Table 3 re­veals that during the 1950s, agriculturalprices moved more or less in line with theconsumer price index (CPt). The implicitdeflators for agriculture and the CPI were

-

22 See Central Bank of Nigeria, Annual Report and Statement of Accounts ILagos: CBN, vari0us yearsl./.J See Ogunfowora, "Conceptualizing Increased Resource Demand and Product Supply Inducing Policies in PeasantAgriculture," Nigerian journal of Economic and Social Studies (March 19731: 191·20 I.lol P. Armington, "A Theory of Demand for Products Distinguished by Place of Productiun," IMF Staff Papers 16(March 1969).

19

-=

l.

Table 2-Relative domestic food crop prices, 1982

Guaranteed Minimum Price Minimum PriceMinimum Farm·Gate as a Share of as a Share of

Crop Price Retail Price Price Retail Price Farm·Gate Price

lnalra/tonl lpercent)

Beans 362 1,032 810 35.1 44.7 f'"Maize 210 592 680 35.5 30.9Millet 231 563 330 41.0 70.0Rice 590 1,071 650 55.6 91.7Guinea corn 220 532 340 41.4 64.7Wheat 280 729 n.3. 38.4 n.a.

Source: Central Bank of Nigeri,', Annual /(eport and Statement of Accounts lLagos: Central Bank, 1(83).Note: n.a. means not available.

quite close. Intrasectoral prices also showedfew significant differences. Thus, the im­plicit deflators for domestic food crops andexport crops were close and moved withthe CPI.

Unlike the 1950s, significant differencesin relative prices began to emerge duringthe 1960s (Tabk 4). The CPI for food onlymoved with the overall CPI so that the rel­ative food price index was more or less con­stant. CPI for food represents the retail pricesof food products and reflects the price paidby the consumer rather than that receivedby farmers. The more appropriate price forfarmers is the farm-gate price deflated byCPI, which is captured by the relative food

r.rops price. A comparison of the CPI forfood and the relative f·Jod crops price showsthat they largely move together, and hencethe prices received by the farmer did notexhibit a significant upward trend relativeto the general level of prices, as reflect.edby either the CPI or the CPI for food. Onthe other hand, the relative price index forexport crops (the index of export prices de·flated by CPI) decreased relative to the over­all CPI during the 1960s.

Agricultural prices diverged even furtherbetween 1970 and 1982 (Table 4). The foodcomponent of CPI rose much faster thanthe overall CPI and was about 18 percenthigher by year than the overall index. Thus

.. Table 3-Relative prices of agricultural output, 1950-57

Implicit Implicitimplicit Deflator for Deflator for

Deflator for Domestic Export ConsumerYear Agriculture" Food Crops" Crops" Price Index b

~

1950 71.5 70.7 75.5 75.0 "'"1951 80.6 70.9 104.7 79.21952 76.9 68.7 102.5 77.11953 81.7 76.5 101.4 80.91954 90.5 86.3 107.6 86.91955 93.5 91.3 104.6 92.31956 98.0 97.7 99.1 99.21957 100.0 100.0 100.0 100.0

Source: Francis Teal. "The Supply of Agricultural Output in Nigeria," journal of Development Studies Uanuary19831: 191·206.

" Sectoral implicit denators are components of the aggregate implicit GDP denator.b A wholesale price index is not available.

20

Table 4-Relative prices of agricultural crops, 1960·69 and 1970·~2

Consumer Relative RelativePeriod/ Consumer Price Index Export Crops Export Crops Food Crops Food CropsYear Price Index (Food) Price Price Price Pr~ce..

(1960 = 100)~

1960·691960 100 100 100 100 100 100

-

1961 100 110 ()5 89 108 1021962 112 118 84 75 119 106

"'-=I 1963 109 108 83 76 114 1051964 110 106 86 78 114 104

"" 1965 114 III 90 78 113 99- 1966 126 133 79 63 151 1201967 121 119 83 69 143 1181968 120 111 82 68 128 1061969 132 134 77 SA 136 102

11970 = 10011970·82

1970 100 100 100 100 100 1001971 111 129 107 92 ! 12 971972 119 132 112 94 119 1001973 127 137 114 90 126 991974 144 157 194 135 135 941975 161 181 174 108 139 861976 198 223 205 104 161 81197i' 231 265 223 97 181 781978 269 312 225 84 222 831970 300 337 241 80 257 8619t1O 331 362 251 76 259 781981 400 453 265 66 291 731982 431 493 290 67 327 76 ..

Sources: Francis Teal, "The Supply of Agricultural Output in Nigeria," journal of Development Studies iJa.luary,. 19831; and Nigeria, Federal Office of Statistics, Economic and Social Statistics Bulletin lSpecial Series),:!!!!

January 1984.Notes: Relative prices are defiat2d by the consumer price index. The food and export crops prices are producer

prices, whereas the consumer price index for food represents a retail price. •~

the relative food price index (the retail in- and 1973, increased between 1974 anddex) trended upward, but the prices received 1976, and declined again between 1977by the farmer declined relative to the overall and 1982. These divergent movements inCPI throughout 1970-82. The relative ex- relative agricultural prices raise a numberport price index (the producer price index) of issues for policy analysis (see Figure 3).declined relative to the CPI between 1970

::

•

21

Figure 3-Food and export crop prices, t970·82Index140

Relative (retail)food price index-

130

120

110

100

90

80

70

:-.. ".. ...: .....: ..~....••••••

••••••0" ...._••.... -. . ........ ......-.. .

Relative food crops~, (producer) price index

""" ,,--Relative export crops

(producerl price Index

1982818079787776757473727160 '--_-1.__....L.._----I__....L..__L--_-I..__.J.-_--L__....L..__L--_-L._-l

1970

Sources: Francis Teal, "The Supply of Agricultural Output in Nigeria," journal of Development Studies (January1983); and Nigeria, Federal Office of Statistics, Economic and Social Statistics Bulletin (Special Seriesl,January 1984.

Note: Relative prices are denated by the consumer price index.

22 ..

4SURVEY OF ECONOMIC POLICIES

-Nigeria has experimented with a wide

variety of economic policies since the late1950s. The policy environment during theI960s, which supported an import-substitu·tion·industrialization strategy of economicdevelopment, gave birth to an inward-look·ing trade regime in which high tariff wallsprotected local manufacturing.25 More re­cent developntents in the economy, partie'ularly since the mid·197(\s, have causedbasic policy goals to be redefined, especiallyfor agriculture.

The Policy Setting

The primary focus J;i\j"lgerl:: ';economicpolicies has, traditionally, been the protec­tion of local industries, modified at timesby concerns for balance-of-payments prob­lems.26 More recently, however', the oilboom and its consequences have directedincreased policy attention toward the needto providp. growth incentives for agricc.lture.

As a capital-defir.it, oil·exporting countrycommitted to rapid economic development,the overriding focus of general economicpolicy in Nigeria, as stated in National De­velopment Plan Documents, is how to util­ize its short-term oil revenue windfall toeffect a transition to a diversified, broad­based economy in the longer term. The needto diversify and restructure the national econ­omy toward self-sustaining growth and de­velopment has direct policy implications foragriculture. It requires the economy to moveaway from the dominance of the oil sector

toward expansion of domestic prouuction,especially in agriculture. One of the majorlong' run isoalS of general economic policyin Nigerici is to maintain a viable agricult'Jralsector du ring and after the oil era. Agricul­tural policies to achieve this goal can beassumed to include: achievement of self·sufficiency in the domestic production offood; revival of agricUltural export crops pro·duct: )n; .seneration of rural and agriculturalemployment; and improvement of rural in­come and welfare.

The food security goal has its roots inthe balam:e·of·payments problem, which hasbecome intractable since 1976. Thus in theshort run there is policy emphasis on theneed to reduce imports of agricultural com·modities (mostly food), but the real long-runpolicy concern appears to be the need toensure a favorable balance-of-payments po'sition in the agricultural sector. Achieve­ment of this objective would return thecountry to a situation similar to that beforethe oil boom, when net foreign exchangeearnings from agriculture formed the basisof ger.eral development strategy, especiallyindustrialization.

The production unit appropriate to thisstrategy should be the main focus of agricul'tural policy. The smallholder farming unitaccounts for more than 90 percent of domes­tic food and export crops production.27 Inspite of recent official flirtation with la'ge­scale farming and agricultural mechaniza­tion, it seems clear that significant expan­sions in agricultural output will have tocome from the small-scale farmer. 28 1m-

l5 This was a fairly common development strategy in developing countries as ~hown by such studies as BelaBalas~a, The Structure ofProtection in Developing CountrieslBaltimore: Johns Hopkins University Press, 1971).lI, Policy evolution in Nigeria is extensively discussed in P. Kilby, Industrialization in an Open Economy: Nigeria1945·1966 (Cambridge, England: Cambridge University Press, 1969); and T. Ademola Oyejide, Tariff Policy andIndustrialization in Nigeria (Ibadan, Nigeria: (badan Universiw Press, 19751.li See Food and Agriculture Organization of the United Nations, Agricultural Development in Nigeria.lB See World B?nk, "L1rge Scale Farming and Mer;hanisation," Nigerian Agricultural Sector Review (Washington.D.C.: World B·.nk, 1979).

23

provement of his productivity and produc· schemes, jr>1 ntly financed by the Nigeriantion environment should therefore be the governmer.. ~,nd the World Bank, extensiontarget of agricultulal policy. services are being revived, <llong with the

provision ofrura! infrastructure and improved

Types of Agricultural Policiesrural marketing systems.31

Another major policy aimed at alteringthe farmers' production environment is sub·

Agricultural policies to improve agricu!' sldized agricultural credit. Recognizing thatture's performance can be conveniently the Nigerian land tenure system and high

-;; grouped as follows: those aimed at altering rate of illiteracy among smallholder farmersthe basic structure of farmers' production hinder their access to credit from the bank-environment; those relating to the size and ing system, the government has adopted twoprice of food imports, as well as the pricing measures to remove this bottlr.:neck. First,of agricultural export crops; and those con· bank loans for agricultural p!'')jects were -

cerning sources of intermediate agricultural provided at concessionary inkrest rates of -inputs, whether imported or domestically 6·8 percent during the !:lsI fIve years com-... produced. (The latter two are discussed in pared to rat~s of 12-14 percent for mostthe section on trade policy.) other economic activities.32 Second, agricul-

Agricultural policies in the first group tural loans are insured by the governmentinclude research and development of im· under the Agricultural Credit Guaranteeproved seeds and technology, the provision Scheme to assist smallholder farmers whoof extension services, and rural infrastruc- are unable to provide acceptable collateraltural development. Although these are long- for bank loans. .-

I!'

standing policy measures, their focus has In addition, a special financial instiru-changed since the mid-1970s. Up to that tion-the Nigerian Agricultural and Coopera-time, most of the agricultural research insti· tive Bank-is funded by the government totutes focused on export crops, in accordance provide agricultural credit to individual farm-with government's preoccupation with cash ers and farmers' cooperatives.

- crop expansion. Little or no attenticn was'9 paid to improving seeds and production tech·

nologies of food crops.2Q [n recent times, Trade Policy ~

~however, additional research facilities havebeen established to examine the specific Nigerian trade policy continues to influ-problems of food crops such as grains and ence intersectoral terms of trade betweenroot crops.30 agriculture and other sectors of the economy,

-The existing network of extension ser· particu[arly on issues such as the size and

.:: vices, which was quite active during the prices of agricultUial imports, the prices of1960s in dealing with the spread and ex· agricultural export crops, and the size andpansion of export crops, was beginning to prices of imports of intermediate agriculturalwither away with the emergence of oil ex· inputs and agricultural capital equir;nent.ports (and hence less reliance on agricultural Its direct effects on the prices of agriculturalexport crops) in the early [970s. Under the inputs and outputs make trade policy a power-agricultural development projects and area ful instn,ment for bringing about desired

20 See Consortium For the Study of Nigerian Rural Development, Strategies and Recommendation.10 For a list of such Facilities and a discussion of their Functions, see Francis S. Idachaba, et aI., 771e GreenRevolution: A Food Production Plan for Nigeria ILagos: Federal Ministry of Agriculture, May 1980).J1 Al\ricultural Projects Monitoring, Evaluation, and Planning Unit, Project Completion Reports IKaduna, Nigeria:Federal Department of Rural Development, 19821.J2 Monetary policy circulars Issued annually contain inFormation on the I\overnment·regulated interest rate struc·ture, They are reproduced and discussed in various issues of Central Bank of Nil\eria, Annual Report and Statementof Accounts.

24

-

-;;;;

changes in the agricultural sector. Until re­cently, however, trade policy's impact onagriculture did not receive much attention.Its use was dictated largely by overall balance­of-payments considerations.

The main trade policy instruments inNigeria are import tariffs, export duties, andquantitative restrictions on imports and ex­ports. Quantitative restrictions occur eitherin the form of import and export bans placedon particular commodities, or specific li­censes required for the import or export ofgiven commodities. During periods of ex­treme pressure on foreign reserves. impor­tation of a wide range of commodities isoften banned entii'ely, while a large numberof other commodities may be restrictedthrough the use of specific import licenses.Thus, between 1982 and 1983, almost 200commodities were placed on the list of com­modities subject to specific import licenses,and the exportation of many food crops wasbanned.

Export duties, ranging between 5 and60 percent, were applied to agricultural ex­port crops such as cocoa, rubber, cotton,palm oil, palm kernel, and groundnutsthroughout the 1960s and the early 1970s.When large amounts of revenue becameavailable to the government from the oilsector, however, the need to rely heavilyon revenue from agricultural export taxesceased. This also coincided with the recog­nition that agricultural export crops neededto be revived. Hence, there have been noexport duties on agricultural crops since themid-1970s. Until the 1970s, in addition toexplicit export taxes, agricultural exportswere also subjected to implicit taxationthrough the marketing and pricing systemof the commodity marketing board. As inmany other developing countries, the mar­keting bJards in Nigeria had monopoly pow­ers over the exports of agricultural cropsand used these powers to tax producers of

export crops by paying them well belowworld market prices, 33

On the Impor~. side, trade policy inNigeria has traditionally protected localmanufactul'ing industries by imposing rela­tively high import duties on finished prod­ucts and very low or no import duties onIndustrial raw materials and intermediatecapital inputs. Th is system has graduallybeen extended to cover the agricultural sec·tor.lmport duties on food cOl:1nlodities suchas maize, rice, wheat, and :;orghum wereraised to between 50 and IDO percent be­tween 1978 and 1982, and agricUltural in­puts have been provided at subsidiz"'J rates.

The result is that most imported agricul­tural commodities are not only subject tohigh import tariffs, but also to fairly strin­gent quantitative restrictions. For manyagricultural commodities, these restrictionsinfluence domestic prices more than tariffsbecause large quantities of food importedby state and federal governments enter thecountry duty-free. Guaranteed minimumprices have been established for many ofthe domestically produced food crops, in­cluding beans, maize, millet, rice (paddyand milled), guinea corn, and wheat. How­ever, this scheme has had little or no effectsince these prices are kept constant for sev­eral years at levels far below the prevailingmarket prices.34

Trade policy on the import of raw mate·rials for inputs and capital equipment forlocal manufacturing activities is generous.Tariff rates for such goods range from 0 to15 percent. Trade policy for agricultural in­puts and capital equipment has becomeeven more generous during the last sevenyears. An extensive program of subsidiesfor intermediate agricultural inputs coversfertilizer, improved seed varieties, her­bicides, insecticides, fungi,cides, and otherchemical inputs. It also provides subsidiesfor capital equipment, particularly tractors.

3l See Consortium for the Study of Nigerian Rural Development, Strategies and Recommendations.3<1 The guaranteed minimum price (GMI'I was kept constant for slveral years because of the possible inflationarypressure that could arise from a high GMP (Central Bank of Nigeria, Annual Report and Statement of Accounts,p.161.

25

The subsidy rates are substantial, rangingfrom 50 percent for tractors to 85 perc:entfor fertilizer. Of all the subsidized inputs,fertilizer appears to have had the greatestresponse from farmers, as indicated by in­creasing u~e. It also appears that at low sub­sidized mices, an excess demand for fertil­izer exists. Thi!i has encouraged theemergence of a secondary market in whichfertilizer is sold at a higher price. Thus, thefarmers' subsidy is probably lower than theofficial rate. Imports of other agriculturalinputs are also subject to quantitative re­strictions. This means that farmers' demandfor these imports cannot always be sati<fiedat the official subsidy rate.

Although trade policy has had a substan­tial influence on both the input and outputprices of agricultural commodities, it hasnot been consistentl~' applied. On severaloccasions during the last seven years, policymeasures were adopted to limit the size ofagricultural imports and raise tariffs on im­ported agricultural commodities in responseto balance-of-payments problems. Such fluc­tt.:ations give confusing signals to producersof agricultural commodities.

Nigerian trade pol;",y also may be bi,lsedin favor of traded agricllitural commoditIes.Import restrictions directly affect the outputprices of traded commodities as well asprices of agricultural inputs, whicr. ".{ beused to produce both traded and nontradedcommodities. However, the direct effect oftrade policy on the prices of inputs and out­put.s of traded commodities is likely to begreater than on nontl'aded commodities.The impact of trade policy on the prices ofthe latter is likely to be largely indirect andwill depend on whether these nontradedcommodities can be substituted for tradedones. Thus, whereas the domestic price ofwheat may be directly influenced by theimport policy on wheat, the domestic pricesof sorghum and millet will probably be influ­enced by the import price of wheat, whichcan be used as a substitute.

Exchange Rate Policy

Changes In exchange rate policy havesignificant consequences for a country's do­mestic relative prices and economic growththrough their effects on the real exchangerate. The real rate is a measure of the termsof trade between the ~raded and nontradedsectors of the economy, which provides thesignal for resource movements. However,governments do not control the real ratedirectly; their instrument of control is thenominal rate. An exchange rate policy fo­cused on maintaining a target real exchangerate would use nominal exchange riltechanges as well as complementary monetaryand fiscal policy measures.

Exchange rat.e policy affects domesticprices of traded and nontraded agriculturalcommodities through its influence on theentire domestic cost str"cture. Overvalua­tion of exchange rates by domestic policiesor other factors appears to be a commonfeature of most developing countries, whereit serves as an impediment to producers ofa~ricultural export crops and an implicit sub­sidy for imports of agricultural and nonagri­cultural goods and services. An additionalproblem for a capital·deficit, oil-exportingcountry like Nigeria is that the high ratesof capital inflows that normally accompanyan oil boom tend to drive the real exchangerate down. In other words, rapid capital in­flows tend to cause the currency to appreci­ate. A policy that keeps the real exchangerate low impedes growth of the tradablegoods sector, particularly agriculture. Thisexplains why some countries with an oilboom have adopted policies to prevent thetradable/nontradable price ratio from con­tinuing to fall as the oil boom proceeds.35

Exchange rate protection increases the pricesof traded goods relative to the prices of non·traded goods and thus enhances relative prof·itability of the traded goods sector.

In Nigeria, the exchange rate policy ap­pears to have been focused on maintaining

•

35 A good example is the case of Indonesia, w:,ich is analyzed in P.G. Warr, "Exchange Rate Protection inIndonesia," Bulletin of Indonesian Economic Stuci;.'s 20 (August 1984): 52·89.

26

..:

a relatively constant nominall'ate. However,between 1974 and 1978, the period of mas­sive capital inflow!: associated with the oilboom, the Central Bank adopted the strat·egy of gradual nominal appreciation of thenaira against the U. S. dollar and the Britishpound sterling with the primary aim of pro­ducing naira exchange rates that wouldadequately reflect the country's balance-of·payments position.36 This policy was clearlythe opposite of exchange rate protection. Itstrengthened the tendency of capital inflowsto appreciate the real exchange rate. It isnot surprising, therefore, that between1970 and 1980 the nominal rate appreci­ated by 22.5 percent and the real rate by55.1 percentY In fact, between 1973 and1980, when oil· related capital inflows wereparticularly significant, the real exchangerate appreciated by 61 percent, comparedto 17 percent for the nominal rate.

Nigeria's exchange rate policy has hada significant impact on the development ofagriculture, particularly since the early1970s when the naira became substantiallyovervalued. Both overvaluation and periodicvariations in the real exchange rate havesubstantially reduced production incentivesfor the nonoi! tradable sectors of the econ­omy, particularly agriculture.

Policy Mechanisms

In addition to import tariffs, export du­ties, and domestic marketing distortion,trade and exchange rate policies have beenimplemented by import and export bans andlicensing and exchange control regulations.For instance, exchange control regulations

and import restrictions have been reliedupon as the primary instruments for carry­ing out balance-of-payments adjustments.Thus, Nigeria's overvalued exchange ratehas been sustained by limiting Imports tothe amount of foreign exchange earned byexporting at the disequilibrium exchangerate. Exchange and import controls are reolied on because they exert prompt, direct,and predictable effects on the value of im­ports and can be used to discriminate be·tween "essential" and "nonessential" im·ports. However, this system suppressesrather than solves the basic underlying prob·lem, works through a costly and complexadministrative structure, and encouragesthe corruption of government officialswhose powers and privileges are deriver.from the exercise of discretion in grantinglicenses and approvals.38 A glaring exampleof the negative effects of quantitative importrestrictions is provided by the movementof domestic rice prices in recent years. Theyhave varied as much as 300 percent withina year largely in response to variations inthe issuance of import licenses. Althoughthis may be an extreme case, short-termvariations in quantitative restrictions haveintroduced substantial price instability forseveral agricultural commodities. This hasreduced the apparent value of incentivesprovided by the trade regime. One way ofestablishing a more reliable and less erraticpattern of trade and exchange rate policieswould be to rely less on quantitative restric­tions and exchange control. Trade and ex·change rate policies can be expected to pro­vide better sign~is for resource movementsin the economy if they depend more on themarket mechanism for their effectivenessthan on bureaucratic discretion.

ii

-,

]t, See Central Bank of Nigeria, "Note on the Determination of Exchange Rate," internal memo, October 1975.37 Analytical attention for determining the exchange rate was on the oil sector, which masked the sustaineddeficit in the basic nonoil balance-of·payments position. As a result, the implications of real exchange rateappreciation for the nonoil tradables were not explicitly determined. See T. Ademola Oyejide, "Exchange '({atePolicy for Nigeria: Some Options and Their Consequences," paper presented at the Workshop on Managementof Nigeria's Foreign Exchange Resources, University of Ibadan, March IS, 1985.]0 See Jagdish Bhagwatl, Anatomy and Consequences of Exchange Control Regimes (Cambridl:e: Balinger, forthe National Bureau of Economic Research, 19781.

27

5AGRICULTURAt PRICE INTERVENTIONSAND INCENTIVES

.,

Government interventions in agricultureare intended to directly or indirectly influ­ence production, factor use, income, andprices, Sometimes, the effect on prices ismeant to benefit the producer, at other timesthe consumer or government. Thus, acheapfood policy is one way of subsidizing urbanconsumers, whereas a commodity market·ing board, which fixes producer prices forexport crops below cOl'responding worldmarket prices, does so to lJoost governmentrevenue. Of course, a guaranteed minimumprice for a commodity can be fixed abovethe corresponding domestic and world mar·ket prices as a means of subsidizing domesticproducers. It is clear therefore that govern·ment intervention in agricultural prices canhave either incentive or disincentive effectson production.

Direct government intervention can, ingeneral, be classified into two broad cate·gories. One type operates in the externalsector of the economy and is implementedthrough either agricultural import or exportcontrols. Import controls include tariffs andquantitative restrictions such as quotas, li­censing, and bans. Similarly, exportation ofagricultural crops can be controlled throughtaxes and subsidies as well a:; through quanti­tative restrictions, such as export quotas,licensing, or the banning of particular crops.The second type of government interven­tion works chiefly through domestic agri­cultural output and input markets. In theagricultural product market, government mayprovide output price support for particularcrops or may administratively fix productprices and thus remove the influence of con·ventlOnal market forces. In the same way,agricultural inputs may be fixed administra­tively so as to subsidize users. Both categoriesof government intervention in agriculturalprices are widely used in ~·igeria.

28

Intervention andCompetitiveness

Domestic prices of Nigeria's agriculturalcrops have been compared with the corre­sponding international prices to indicate theapproximate extent to which domestic agri·cultural production is shielded from externalcompetition. For importables, farm·gate pricehas been compared with the Nigerian c.i.f.import price plus port and transport chai'gesto the consumption center. For the export­able commodities, the comparison is betweenthe Nigerian f.o.b. price and the farm-gateprice plus the appropriate transport and porthandling charges. This exercise is beset withinherent problems. The comparisons arerough because no adjustments have beenmade for ql!ality differences among com­modities. 111 addition, world price equiva­lents have been translated into domesticcurrency using the official exchange rate.This procedure does not take account of thesubstantial overvaluation of the naira, par­ticularly since the mid-1970s. This impliesthat world price expressed in domestic cur·rency has been underestimated in relationto the degree of overvaluation. Hence, anyimplicit tax on exports has been underesti­mated, whereas protection to imports hasbeen overestimated. It is important to bearthese deficiencies in mind when interpret­ing the price comparisons.

The ratios of domestic prices to inter­national prices for selected agricultural cropsin Nigeria for 1979-82 are presented inTable 5. The comparison can be made olllyfor internationally traded commoditi'~s.

Hence, crops such as yams, cassava, millet,and cowpeas, which are not internationallytraded, have had to be excluded even thoughthey are important components of the Ni·gerian food basket. Groundnuts and palm

Ii-I~

-=

Table 5-Ratios of domestic pricesto international prices forselected agricuitural crops,1979·82

Commodity 1979 1980 1981 1982

Food cropsMaize 1.13 1.35 1.99 2.40Rice (paddy) 0.75 0.72 0.85 1.19Sorghum 1.29 1.17 1.85 1.87

Food export cropsGroundnuts 0.97 0.88 1.15 1.47Palm 011 0.88 0.82 0.98 1.60

Export cropsCocoa 0.63 0.94 1.45 1.40Rubber 1.00 0.79 1.31 1.18Cotton 0.56 0.62 0.65 0.86Palm kernel 1.03 1.00 1.31 1.78

Sourcp' Derived from data in James W. Robertson, "AnAnalysis of Agricultural Trade and SubsidyPolicies in Nigeria," Country Policy Depart·ment, World Bank, Washington, D.C., August1983 (mimeographed).

Note: Domestic and international prices are madecomparable by transforming internationalprices into their domestic currency equiva·lents, using the official exchange rate.

oil were important export crops during the1960s, but are now largely used as food.However, if current policy to revive all ex­portables succeeds, they may again becomeimportant export crops.

An implicit tax or negative protectionis implied in Table 5 whenever domesticprice is below the external price and hencethe ratio is less than unity. A ratio of do­mestic to international price that exceedsunity implies positive protection for domes­tic production of the crop. The table showsa mixed pattern of protection. Whereas itis obvious that the general level of protec­tion has increased for the three groups ofcrops, it is not so clear that government'sprice intervention policies have made anydistinction among the groups. Thus by 1982rice and rubber appear to be equally pro­tected. The same applies to sorghum andpalm kernel. Maize stands out with an un·usually high 140 percent protection rate.

Until 1980, the results indicate that ex­port crops (except palm kernel) were im·plicitly taxed. The rate was particularly high

for cotton; it is also the only export crop inthis sample that remained implicitly taxedthrough 1982, though the rate declined from1979. By 1982, all other export crops wereprotected as a result of administrative priceinterventions.

Groundnuts and palm oil were genc:~rally

subject to varying degrees of implicit taxa­tion through 1981, after which they receivedsubstantial protection. Among the food crops,only paddy rice was implicitly taxed between1979 and 1981. Maize and sorghum en­joyed import protection throughout 1979-82.

The general pattern indicates that, from1979 onward, government's agriculturalprice interventions have differed from thestandard developing-country price posture,characterized by an implicit tax on exportagriculture in general and implicit protectionon import-competing agriculture (usually foodcrops). However, a note of caution shouldbe entered here. As preViously indicated,the estimated ratios in Table 5 were com­puted using the official naira exchange rate.Given the high rate of overvaluation of Ni­gerian currency since the early 1970s, theimport protection rates are probably notreally as high as those in the table. By thesame token, the estimates of implicit taxa·tion are probably higher.

Year·to-year variations in the level of ex·change rate overvaluation and foreign pricechanges make it difficult to determine theexact degree of over· and underestimationin the implicit protection and tax rates. Whatseems clear, however, is that the generaleffect of the government's price interven·tion policies has been to raise the domesticprices of most of Nigeria's agricultural cropsabove their corresponding world prices sothat varying degrees of import protectionare prOVided for domestic production.

Intervention and EffectiveProtection

The combined effects of price interven­tion policies on the relative incentives tothe major activities in the agricultural sectorcan also be assessed by comparing estimatesof nominal and effective rates of protection

29

--

=

for different crops.3l1 The nominal rate mea­sures the extent to which domestic pricesdiverge from world parity prices. It should,in principle, reflect a pattern similar to thatrevealed in Table 5 since the price variablesbeing compa..~d arc essentially the same.

A clear upward trend in nominal ratesof protection for ail t;,'ops, both food andnonfood, is revealed in Table 6.ltalso showsthat while most of the exportable crops(groundnuts, cocoa, and rubber) had nega­tive nominal rates of protection in the ear·Iier years, all had substantial nominal pro­tection in 1981 and 1982. This confirmsthe pattern, shown in Table 5, that all cropswere receiving protection from externalcompetition by 1982.

A limitation of the nominal rate of pro·tection is that although it rl,easures the ef·fects 0; price intervention for a sector's out·put prices, it ignores the input side. As aresult, nominal rates of protection are notadequate measures of the effects of priceinterventions on both output and input mar·kets. A more appropriate indicator is theeffective rate of protection, which reflectssubsidy to value added. Although it is a bet·tel' measure of the amount of incentive tothe domestic producer of a commodity, itdoes not take account of exchange rate over­valuation.

Estimates of effective rates of protectionexhibit a clear upward trend (Table 7), inspite of wide variations for particular cropsand over time. For exportable crops, thismeans that rates of effective protection orimplicit taxation switched from negative inthe 1960s and 1970s to positive in morerecent times. It ccnfirms the conventionaldeveloping-country pattern of positive andrelatively high effective protection rates. Al­though the effective protection rates formaize, sorghum, and cocoa were particu­larly high in 1981 and 1982, it should alsobe noted that levels of protection for man­ufacturingand processing activities have beenhigh anu widely dispersed since the early

Table 6-Nominal rates of protectionfor selected agricultul"alcrops, t979·82

Commodity 1979 1980 1981 1982

(percentl

Maize 61.2 94.8 188.3 245.4Rice (paddy) 1.1 -4.4 13.2 59.0Sorghum 84.9 66.9 187.9 195.2Groundnuts -0.9 -10.5 17.5 n.a.Cocoa -37.6 -7.7 32.8 26.0Rubber -49.3 -46.5 -2.1 14.2Palm kernel 3.4 0.0 31.2 n.a.

Source: James W. Robertson, "An Analysis of Agricul­tural Trade and Subsidy Policies In Nigeria,"Country Policy Department, World Bank,Wa~hington, D.C., August 1983 Imlmeo­graphedl.

Note: n.a. means not available.

1960s when Nigeria adopted the import­substitution-industrialization strategy. On av­erage, effective r~tes of protection for con­sumer goods range between 80 and 150percent and those for intermediate and cap­ital goods between 25 and 75 percent. Sev­eral outliners-goods under import licenseor otherwise subject to some form of quan­titative import restriction-have effectiveprotection rates of more than 200 percent.In spite of recent increases in their rates ofprotection, agricultural crops generally arerelatively less protected than products ofthe manufacturing sector. Within the agri·cultural sector itself, export crops receiveless protection than food crops.

Implications of PriceIntervention

The above estimates clearly indicate thatagricultural price interventions in Nigeriahave increasingly protected domestic pro­duction of agricultural crops from externalcompetition. For most of 1960-82, how-

W The concepts of nominal and errective protection, as well a, [heir uses and limitations, are extensively discussedin Balassa, Structure of Protection in Developing Countrie,'j and William M. Corden, The TheOly of Protection(Oxrord: Clarendon Press, 19711.

30

Tahle 7-Effective rates of protection, selected agricultural crops, selectedyears, 1960·82

Commodity 1960-05 1965·70 1970·76 1979 1980 1981 1982

(percentl

M~ize -3 14 13 61 95 189 247Rice -20 23 35 I -4 13 59Sorghum -3 14 13 86 67 190 197Millet -3 14 13 8 9 5 3Yams n.a. n.a. n.a. I I I 0 :-Cassava n.a. n.a. n.a. t I 0 ICowpeas n.a. n.a. n.a. 4 4 2 2Groundnuts -40 -47 -53 -I -II 18 n.a. -Palm 011 -56 -50 -29 -n.a. n.a. n.a. n.a.Cocoa -48 -60 -42 -31 22 138 114Rubber n.a. n.a. n.a. -I -23 34 n.a. --Cotton -44 -42 -43 -21 -16 18 20

Sources: Data for the years 1960·76 are taken from Tshikala Tshlbaka, "Efl'ects of Nigerian Trade Policies on theAgricultural Sector, 1955/56·1975/76," Ph.D. thesis, University of Ibadan, 1979, p. 102. Data I'or theyears 1979·82 are laken I'rom James W. Robertson, "An Analysis 01' Agricultural Trade and SubsidyPolicies In Nigeria," Country Policy Department, World Bank, Washington, D.C., August 19113 (mimeo·graphedl, p. 24.

Notes: n.a. means not available. El'l'ective rates of protection are computed taking into account purchased Inputs ..sublect to import duties and sales taxes.

.I

ever, this simply means that the rate of im­plicit taxation vf agricultural export cropswas decreasing. Export crops did not receivepositive encouragement through protectionuntil the 1980s. It can therefore be con­cluded that until fairly recently exportablecrops able to compete successfully in theinternational market have been taxed,whereas import-competing crops-usuallyfood-have received substantial protection,at least since the mid-1960s.

The treatment of agricultural exportcrops appears consistent with Nigeria's gen·eral development strategy and policy objec·tives before the oil boom of the mid-1970s.In most developing countries since the late1950s export crop marketing boards havebeen used more as government revenue·gathering agencies than as a merms of en­hancing domestic production or protectingfarmers' income. This was paaicularly truein Nigeria during the 1960s. But as govern­ment received more revenue from the oilsector from 1974 onward, the need to fi·nance government services by squeezingthe agricultural sector abated. At the sametime, the critical importance of agricultureto economic development began to be more

widely recognized. This was spurred, nodoubt, by rising food import volumes andfalling agricultural export earnings.

It is doubtful whether the substantialprotection of food crops since the mid­1960s has occurred as a result of policychoice or as a by·product of other macro­economic considerations. Ouantitative im­port restrictions have been the most signif­icant influence on nominal protection, espe­cially for food crops. Guaranteed minimumprices have had no discernible effect on do­mestic prices because they have generallybeen much lower than prevailing marketprices. Input subsidies, although substan­tial, have not had much impact on the largemajority of Nigeria's farmers, who continueto rely primarily on traditional producUontechniques.

Ouantitative import restrictions on foodcrops tend to be used largely for dealingwith short-term balance-of-payments adjust­ment problems. It is usual to have a longlist of commodities placed under specificimport license requirements or completeban whenever Nigeria's foreign reserve Isunder pressure. When this happens, it isreflected in large positive rates of protection

31

.-

i-

....

='!

for the com!nodities concerned. Because ofthe way th'~y are used, quantitative Importrestrictions unfortunately involve short­term fluctuations in size and sometimes di­rection of production Incentives. The result

32

Is that protection for food crops often doesnot Indicate stability and consistency In pol­icy intentions. Hence, apparently large pro­duction incentives do not necessarily resultin positive and sustained supply response.

6

P..GRICULTURE AND THE DUTCH DISEASE

The rapid expansion of the oil sectorsince the early 1970s has led to sectoralchanges and reallocation of factors of pro­duction among different economic activities.A resource boom of this nature influencesthe sectoral structure of the economy largelythrough changes in relative prices.4o

Models of the Dutch Disease phenome­non have been analyzed to identify basichypotheses relating to the effects of a re­source boom, particularly on the relativesize of sectors, sectoral prices, the wage rate,and the real exchange rate. These hypoth­eses have been examined in the iight of thestructural changes in the Nigerian economybetween 1979 and 1982 to determine theeffects of the oil boom on output and pricesof agricultural export crops and import­competing food crops.

Effects of a Resource Boom

The rapid expansion of the resource sec­tor in a resource-exporting country affectsthe overall economy through a network ofinteractions. The resource sector uses factors,particularly labor and capital, which, if notbrought in from abroad, must be withdrawnfrom other sectors of the economy. Expan­sion of the resource sector creates additionalincome, which generates expenditures. Theeffects of these expenditures depend on thetypes of goods on which the increased in­come is spent. The resulting spending patternaffects demand and supply conditions in theproduct market.. The sector's withdrawal offactors also im~inges on the economy's factor

markets. Thus expansion of the resourceaffects not only relative product prices butalso factor prices and the exchange rate.The effect on the exchange rate occurs be­cause exports of the expanding resource gen­erate an inflow of capital, the spending ofwhich affects the real exchange rate. Overthe long run, a booming resource sectorleads to changes in the sectoral structure ofthe overall economy.

Several models have been developed tocapture, in a more formal sense, the basicideas and hypotheses sketched above. Atyp­ical model of this type is based on the stan­dard assumptions of a small, open '.conomyproducing three kinds of goods: importables,exportables, and nontradC1bles. The worldprices of the importables and exportablesare exogenously given, whereas the pricesof (nontraded) domestic goods are deter·mined by domestic demand and supply fac­tors. One of the two traded goods sectorsis taken as the resource sector, and the otherrepresents traditional food and agriculturalproducts, as well as import-competing man­ufacturing products.

In general, a booming resource sectorinfluences the rest of the economy throughthe spending and resource-movement mech­anisms. Each is a distinct channel for theeffects and can be shown separately usi~g

simple versions of the basic Dutch Diseasemodel.

The Spending MechanismThe spending mechanism is best illus­

trated by a model that treats the resource

...

.10 This section relies heaVily on the growing body of literature on the "Dutch Disease" phenomenon. which takesits name From the eHects of a boom in natural gas on the economy of the Netherlands. Contributions to theliterature include: R. G. Gregory, "Some Implications of the Growth of the Mineral Sector," Australian journalof Agricultuml Economics 20 (1976): 71-91; William M. Corden and P. Neary, "Booming Sector and De-Indus­trialization in a Small Open Economy," Economic journal 92 (19821: 825-848; A. C. Harberger, "Dutch Disease:How Much Sickness, HolV Much Boom?," Resources and Energy 5 (No. I, 19831i and H. Siebert, ed., TheResource Sector in an Open Economy (Berlin: Springer-Verlag, 19841.

33

...sector only as an exporter having no supply· of production but generat~s an increase Inside links with the rest of the economy. As income. As this additional income is spentbefore, the rest of the ecnnomy consists of on both traded and nontraded goods, rela·two sectors, the traded nnd the nontraded. tive prices change. The excess demand forThe nominal sector prices are Pll for the nontraded goods forces up the relative price

~

resource sedor, Pt for the traded sector, and in favor of nontraded goods, whereas the -

Pn for the nontraded goods !lector. Because increased demand for traded goods is metworld prices of traded goods are exugenously by increased imports. The result is that thedetermined, the ratio PI/PI is treated as expansion of the nontraded sector isgiven. achieved at the expense of the traded sector;

The aggregate output of all traded goods factors of production are diverted from thesectors (O·r! consists of the output of the traded sector whose output also declines.

;;;;; resource sector (ORI and the remaining~

~ traded goods sector (at): The Resource Movement Mechanism

aT = at + (Pil/Ptl OR' (I) If the resource sector is not an export

The economy's total output (a) is given byenclave, it can also interact with the rest ofthe economy on the supply side. Assuming

a = Or + an, (2)that capital is sector·specific, this means thatin the short run labor is the only mobile

where an represents the output of the non·factor of production. The production func·tion for each of the three sectors is charac·

traded goods sector. terized by diminishing marginal products.The economy's production possibility In each sector therefore, the marginal prod·

frontier is assumed to have the usual con· uct of labor is a decreasing function of thecave shape so that at least one factor (pre· labor input. Atransformation curve, similarsumably labor) can move between the do· to that in Figure 4, can be constructed. Itsmestic traded and nontraded goods sectors slope indicates the opportunity cost of non·(Figure 4). The resource boom is reflected traded goods in terms of traded goods.by the movement of the transformation A boom in the resource sector can,curve from n't' to n"t". Following this shift, through its effect on income, cause the de·the equilibrium production point movesfrom P to P', reflecting the existing price mand curve for the nontraded goods sector

to shift upward. This puts upward pressureratio between nontraded and traded goods on the Pn/Pt ratio, which in turn induces alPn/Pt). But, if all income is spent and non· rightward shift in the supply curve of non·tradables are not inferior goods, the new tradable goods. Thus, both the booming reoconsumption point C will be to the right source sector and the nontradable sectoranti below P', given the concave shape of demand more labor. Because the total sup·the transformation curve. In this situationthere would be an excess demand for non· ply of labor in the economy is fixed, the

traded goods that could only be eliminated required labor is drawn from the tradable

by an increase in the relative price of non· sector. The wage rate in the traditional trad·

traded to traded goods (Pn/Pt). This relative able sector is forced up as labor moves to

price change would cause an increase in the two other sectors.

the output of nontraded goods and a corres·ponding reduction in the output of the do· Total Effectmestic traded goods sector (a movementfrom T to T' in Figure 4). The total impact of a resource boom is

In this simple version of the Dutch Dis· a combination of several effects. The mag· ~

ease, the resource boom reflects an increase nitude of each may vary depending on thein foreign resources received. The booming intersectoral substitution relationships inexport sector does not use domestic factors both production and consumption. For in·

34

Figure 4-Spending effect of a resource boom

a,

...

...

I"

tI'

T

T'

I

t i-----t----IIIIII

n'

n-t------L-..---------..L.---_ ON

stance, the movement of resources as theresult of the boom causes the price receivedby the traditional export goods sector to fallrelative to the prIce of domestic goods, andthe domestic output of this sector is re­duced. In the same wa'j, the relative priceof importables falls and the size of import­competing goods diminishes. However, thenontradables sector is not homogeneous,and some of these goods may have elas­ticities of substitution (in consumption)with import-competing or exportable goodsthat are quite high. In such cases, a resourceboom may be expected to reduce the outputof those nontraded goods for which importsare close substitutes, all else being equal.

In some cases, the total effect of a re­source boom can be ambiguous. One exam­ple Is the combined effect of spending andthe resource movement on the output ofdomestic goods. On the one hand, the

spending effect raises the relative price ofhome goods and hence induces an increasein the output of these goods. On the otherhand, the resource movement effect couldreduce the output of home goods. Whenboth mechanisms are effective simultane­ously the total impact cannot be determineda priori, and it becomes an empirical issue.In general, however, it seems clear that aboom in an export sector affects the import­competing sector in much the same way asa tariff reduction. It creates or increases do­mestic production disincentives (or reducesexisting domestic production incentives)through unfavorable relative price changes.In comparison, the boom affects the tradi­tional export sector (that is, agriculture) asan export tax increase. It changes the termsof trade so that they are unfavorable fordomestic production of agricultural exportsby reducing their domestic relative prices.

35

-=

.::

Some DynamicsThe above analysis focuses on the long­

run effects of a resource boom on the com­petitiveness of the rest of the economy. Theintroduction of a monetary sector adds dy­namic considerations to these results.

If money is added to the system describedabove, a resource boom will also affect itssupply and demand. In the first place, oncethe resource sector produces exports it earnsforeign exchange. A boom in tha't sectorwill generate a balance-of-payments surplusif it is assumed that an external paymentsbalance existed prior to the boom. Whenthe Central Bank monetizes this balance-of­payments surplus, money supply increases.Second, the increase in income brought aboutby the boom will lead to an increase in thedemand for money because the demand formoney is normally positively related to thelevel of income. Thus the two tendenciescould!ead to an excess supply of money oran excess demand ior it. An excess supplyof money implies (by Walras' law) an excessdemand for both tradable and nontr?dablegoods-a situation that creates inflationarypressures and depresses the relative priceof tradables further. An excess demand formoney would have the opposite effect. It isclear that a boom in an export resource cangenerate a balance-of-payments surplus, andthat if this is monetized, there would be anincrease in the supply of money as well asinflation. An increase in the general pricelevel that is not matched by an equivalentd.evaluation would generate a real apprecia­tion of the domestic currency. This appreci­ation would, in turn, squeeze profitabilityout of ~he traditional export and import­competing sectors of the economy.

In summary, the general effects of a re­source boom on the traditional export goodssector (in this case agriculture) and the im­port-competing goods sector (manufactur­ing) include loss of competitiveness in bothexportable and importable goods sectors asreve?led by falling relative prices; loss ofrelative shares (of total output and employ­~ent) by the exportable and import-compet­109 sectors; an upward trend in the realwage rate in the tradable goods sector; anupward trend in the general price level; and

36

currency appreciation. The adjustment oft?e Nig~rian ,economy to the rapid expan­sion of ItS 011 sector during the 1970s isanalyzed below.

Consequences of theNigerian Oil Boom

It is generally recognized that the oilboom that accompanied large increases inworldwide petroleum oil prices in 1973/74and again in 1979/80 has signific;>,lltlytransf:>rmed the structure of the Nigerianeconomy. This transformation is indicatedindirectly, in the growth rates of variou~sectors since 1960.

The dominance of the oil and mineralssector in the Nigerian economy is dem­onstrated most clearly, however by an ex­amination of the structure of m~rchandiseexports, particularly because the externalsector is so important in the economy. Theshare of oil and minerals rose sharply from8 percent in 1960 to 95 percent in 1981.Agriculture's share dropped from 89 per­cent in 1960 to 4 percent in 1981. By 1981oil contributed more than 70 percent of totalgovernment revenue.

The Dutch Disease model provides anappropriate handle for analyzing the conse­quences of structural changes in the econ­omy brought about by the oil boom. This isdone by relating the general predictions ofthe model to the Nigerian experience. Thepredictions of particular concern in thisexercise include the relative loss of outputand employment as well as competitivenessby the nonoil tradable goods sectors. Alsorelevant are the evolution and trends of theexchange rate, real wage rate, and the gen­eral price level, all of which are related tothe issue of relative sectoral competitive­ness in the economy.

Effects on Sectoral Outputand Employm~m:

Structural changes in the economybrought about by the oil boom have implica­tions for sectoral output and employment(Table 8). As the Dutch Disease model pre­dicts, the boom in the oil sector adversely

,.

Table 8-ehanges in sectoral contributions to output, employment,and exports, 1970 and 1982

Share ofOutput Share of Employment Share ofExportsSector 1970 1982 1970 1982 1970 1982

(percent!

Agriculture 48.78 22.19 75.00 59.00 71.90 2.40Oil and mining 10.22 24.87 0.20 0.40 15.40 97.50Manufacturing 7.15 5.64 15.00 17.70 12.70 0.10Services 33.85 47.30 9.80 22.90

Sources: Computations are based on data from Nigeria, Federal Olllce of Statistics, National Accounts 0/NIgerIa(Lagos: FOS, Ni!\eria, 19781; and Nigeria, Federal OFFIce of Statistics, EconomIc and Social StatisticsBulletIn (Special Series), January 1984.

affected output of nonoil tradables. Ti1Us,agriculture's contribution to total output de­clined from about 49 percent in 1970 to22 percent in 1982. The share of manufac­turing fell much less, from 7 percent tonearly 6 percent. But oil's share more thandoubled-from 10 percent in 1970 to al­most 25 percent in 1982. The service sectorgained-as predicted-from the boom, withits relative share of output rising from about34 percent to 47 percent during the sameperiod.

Changes in sectoral employment exhib­ited a slightly different pattern. Whereasagriculture's relative contribution to totalemployment declined, as expected, from 75percent to 59 percent, the relative share ofmanufacturing actually increased slightly inspite of the significant decline in this sec­tor's relative contribution to total output.In comparison, the booming oil sector dou­bled its share of employment, although itstill represented less than I percent of em­ployment. Services increased its share morethan twofold. Relative gains recorded inboth of these sectors are consistent withthe predictions of the Dutch Disease model.

Changes in the structure of exports mostdramatically reflect the impact of the oilboom. As Table 8 shows, agriculture's shareof total exports fell sharply from about 72percent to less than 3 percent, whereas the

share of manufactures declined from 13 per­cent to less than 1 percent. Correspond­ingly, the share of the oil and mining sectorrose from 15 percent to 98 percent.

These changes in sectoral output andemployment reflect intersectoral resourceshifts in the Nigerian economy, largely inresponse to the incentive or disincentiveeffects of relative price changes. The use ofa simple model designed for analyzing struc­tural shifts would assist in prOViding furtherinsights into the effects of the intersectoralmovement of resources.4 \ This model ex­amines structural changes within a specifiedperiod. Suppose that, at the beginning ofthis period, the value of agricultural outputis related to the gross domestic product(GDP) during the time interval so that agri­culture (AS t ) contributes b. percent ofGOP I' Then, at the end of the period, thevalue of agricultural output ought, hypothet­ically, to be AS~ = b, percent of GDPz ifno structural change has occurred duringthe period, and GDPz represents the end-of­the-period value of the GOP. But if any struc­tural change has taken place, the actualvalue of agricultural output at the end ofthe period (ASz) will be different from itshypothetical value (AS11. In fact the total(actual) change (TC) in the value of agricul­tural output can be decomposed into twocomponent parts:

•

,II A similar model is developed and applied in E. C. Edozien and T. Ademola Oyejide, "Import Restrictions inNigeria and Their Impact on Imports From Japan," Nigerian journal 0/ Economic and Social Studies 15 (July19731: 157·170.

37

with the structural shift effect (SSE) equalto (ASz - AS~I, and the overall economicgrowth effect (EGE) equdl to (AS~ - ASd.In essence, SSE can be identified as thechange in a particular ~ ~ctor's share of totalGOP that may result from shifts in the dis­tribution of that GDP between the differentsectors that contribute to it. EGE, in compar­ison, reflects the impact on a pnrticular sec·tor of changes in the overall size of the GOP.Thus, given a constant relative sectoralshare, particular sectoral (absolute) valuesmay increase or decrease as a result of gen­eral expansion or contraction of the GOP.Total change for a given s\'ctor is made upof these two parts.

In this scheme, the l:-ffect of incentivesor disincentives of relative price changes(whether autonomous or policy-induced)are assumed to be captured by the SSE,whereas EGE takes care of the possible ex­pansion or contraction of sectoral outputvalues emanating from a general increaseor decline of the GOP during the period.The decomposition achieved by this simplemodel is obviously not as satisfactory as onewould wish. Its ilnplic" reliance on a "nor­mal" growth pattern that assumed propor­tional growth rates in each sector implies

TC ASz - AS, -c, (ASz - AS~)

-I- (AS~ - AS,), (3)

that its application in a situatiun where sec·toral growth rates are known to be unevenposes some problems.42 But it does producea general indication of the direction andeffects of sectoral shifts even where growthis nonproportional, for example, an econ·omy in which a booming sector coexistswith other stagnant or declining sectors.

A crude measure of the effects of struc­tural changes is derived by computing thehypothetical sectoral output values for1982, using the sectoral 1970 percentageoutput shares, which are then comparedwith the actual 1982 sectoral output values.The result shows sectoral gains and lossesin values and percentages (Table 9). Thistable reveals that both agriculture and man·ufacturing suffered significant losses as aresult of these shifts. The agricultural sectorabsorbed a relative loss of almost 55 per'cent, while the manufacturing industry sus­tained a loss of 21 percent. Correspondingto these losses are the substantial gains bythe booming oil and mining sector and theservices sector. The output of the oil andmining sector increased by about 143 per­cent over and above its normal growth pro­jection, and the services sector increasedabout 40 percent. Similarly, Table 10 showsthat the impact of sectoral shifts on exportsis reflected in large relative losses for agri­culture and manufactures. It is fairly clearfrom these figures that the nonoil tradables,

•

Table 9-Effects of sectoral shifts on output, 1970-82

PercentoC1970 1982 1982 Gainor Gainor

Sector Actual Actual Hypothetical Loss Loss

(Nmilllonl

- Agriculture 1,731.3 iO,410.3 22,888.1 -12,477.8 -54.5Oil and mining 362.7 11,670.7 4,795.3 6,875.4 143.4Manufacturing 253.8 2,647.5 3,354.9 -707.4 -21.1

--"Services 1,201.4 22,192.5 15,882.7 6,309.7 39.7

TotalGDP 3,549.3 46,921.0 46,921.0)I

Sources: Computations are based on data from Nigeria, Federal Office of Statistics, National Accounts ofNigeria(Lagos: FOS, Nigeria, 1978); and Nigeria, Federal Office of Statistics, Economic and Social StatisticsBulletin (Special Series), January 1984.

•\2 For a similar idea, see H. B. Chenery, "Patterns of Industrial Growth," American Economic Review(September1960).

38

-- Table 10-Effects of sectoral shifts on exports, 1970-82

Percentor-= 1970 1982 1982 Gainor Gainor

Sector Actual Actual Hypothetical loss loss i~

(N mlllloni

Agriculture 238 198.6 5,900.4 -5,701.8 -96.6all and mining 51 8,003.2 1,263.8 (J,739.4 533.3Manufacturing 42 4.6 1,042.2 -1,037.6 -99.6

Total exports J31 8,206.4 8,206.4

Sources: Computations are based on data from Nigeria, Feder.ll Office of Statistics, National Account3 of NIgerl,l(l<1g0S: FOS, Nigeria, 1978); and Nigeria, Federal Office of ~Iatlstlcs, EconomIc and Social StatisticsHul/etin (Special Serlesl, January 1984.

particularly agriculture, bore the brunt ofthe sectoral shifts caused by the oil boom.

Sectoral shifts had similar effects on em­ployment (Table I I ). Agriculture suffered aloss of more than 5 million workers or 27percent, while the services sector gainedmore than 4 million or 57 percent. Althoughemployment doubled in the booming oil andmining sector, it is not a labor-intensive sec­tor and therefore the impact of this gainwas negligible. Manufacturing, which suf­fered an output loss (Table 9), managed a15 percent gain in employment.

Shifts among resource sectors bringchanges in sectoral output and employmentthat can be decomposed into structuralshifts and economic growth effects. Table12 presents output data on both compo­nr.nts. Although both agriculture and man­ufacturing suffered large structural shiftlosses, these were more than compensated

for by gains from the economic growth ef­fect. For thz oil and mining and the servicessectors, the gains derived from both compo­nents were cumulative. The services sectoraccounted for more than 48 percent of thetotal increase in output, well above the 26percent share of the booming sector, whichwas just higher than that of the agriculturalsector.

Total change in employment over 1970­82 can also be decomposed by sector (Table13). The relative loss in the agricultural sec­tor traceable to structural shifts is compen­sated for by gains through the economicgrowth effect so that the sector records asmall increase in employment. Thus, agri­culture had a relative, but not absolute, fallin employment.

As in the case of output, the major over·all gainer from changes in employment wasthe services sector. This sector accounted

Table 1I-Effects of sectoral shifts on employment, 1970-82 --Percent or

1970 1982 1982 Gainor GainorSector Actual Actual Hypothetical loss loss

Imlllloni

Agriculture 19.93 20.060 25.500 -5.440 -27.12Oil and mining 0.05 0.136 0.068 0.068 100.00Manufacturing 3.99 6.018 5.100 0.918 15.25Services 2.60 7.786 3.332 4.454 57.21

- Total employment 26.57 34.000 34.000-

..Sources: Computations are based on data from Nigeria, Federal Office of Statistics, National Accounts ofNigeria

(Lagos: FOS, Nigeria, 19781: and Nigeria, Federal Office of Statistics, Economic and Social StatisticsBul/etin (Special Series), January 1984.

39

Table 12-Components of sectoral shifts in output of the Nigerian economy,1970-82

Components orthe Sectoral ShiftStructural Economic Percent

Shirl Growth Total ofSector Errect Effect Change Change

(Nmlllloni

Agriculture -12,477.8 21,156.8 8,679.0 20.0011 and mining 6,875.4 4,432.6 11,308.0 26.1Manufacturing -707.4 3.101.1 2,393.7 5,5Services 6,309.8 14,681.1 20,991,1 48.4

Sources: Derived from Tables 8 and 9.

Table 13-Components of sectoral shifts of employment irt the Nigerianeconomy, 1970-82

Components of the Sectoral ShiftStructural Economic Percent

~ Shift Growth Total ofSector Effect Effect Change Change

(mililoniAgriculture -5.440 5.570 0.130 1.7011 and mining 0.068 0.018 0.086 1.2Manufacturing 0.918 1.110 2.028 27.3Services 4.454 0.732 5.186 69.8

Sources: Derived from Tables 8 and I I.

for about 70 percent of the increase in totalemployment compared with just over 27percent for the manufacturing sector. Thisanalysis thus supports the general proposi­tion that both agriculture and manufactur­ing tend to suffer a decline in relative sharesof total output and employment when a re­source boom (l(;curs. In Nigeria, however,the general economic expansion broughtabout by the oil boom also ensured that thenonoil tradables sectors were spared abso­lute losses in total output and employment.

Effects on Sectoral CompetitivenessAn analysis of trends in external and

internal relative sectoral prices reveals thegeneral pattern of competitiveness in theeconomy. Starting with the external sector,the external prices of aggregate exports andcocoa exports are deflated by an index ofinternational prices to produce indexes ofreal export prices (Table 14).

40

Table 14-Real prices ofexports andterms of trade, 1970-82

Aggregate Cocoa TermsYear Exports Exports ofTrade

(1970 = 100)

1970 100.0 100.0 100.01971 126.5 69.4 130.51972 123.9 54.8 128.51973 149.7 52.9 152.11974 337.7 69.2 341.11975 313.7 64.9 327.01976 334.5 69.6 350.51977 347.2 121.3 363.01978 284.9 122.3 313.31979 388.8 103.1 400.91980 596.7 59.6 605.61981 679.1 65.2 685.71982 n.a. 63.2 n.a.

Sources: Unit export values for aggregate exports andcocoa are taken from the International Mon·etary Fund, International Financial Statistics(Washington, D.C.: IMF, various years). Theyare denated by the composite consumer priceindex obtained from Nigeria, Federal Officeof Statistics, Economic and Social StatisticsBulletin (Special Series), January 1984.

=

The terms of trade improved consis­tently and substantially during the 1970-81period. But significant upward movementsIn the real aggregate export price index,particularly in 1974 and then again in 1979,reflect the upsurge in world 011 prices. Theprice index for cocoa is more relevant. Thisindex shows that the real prices of Nigeria'sagricultural exports were depressed from1970 to 1982 except for 1977-79. Internalprice policy developments shown in Table4 appear not to have adequately compen­sated for the significant downward trend inreal prices of both agricultural export cropsand food crops.

Factors contributing to the loss of com­petitiveness include changes in the ruralwage and real exchange rates (Table 15).

The nominal rate of exchange declined ur.tll1980, except for 1977 and 1978, and t~len

rose through 1982. The real exchange ratedeclined through 1970-82 except for 1973.This means that the naira generally appre­ciated In terms of its external value. Com­bined with this was a threefold increase inthe estimated real rural wage rate. Thus asubstantial inflationary prr~ssure strengthenedthe appreciation of the :eal exchange rateand, together with a labor cost squeeze, ledto a significant loss of competitiveness bythe nl)noil tradables, particularly agricul­ture. The adverse effects on agriculturalprices of changes in income, inflation, andexchange rates from the oil boom do notappear to have been adequately compen­sated for through government intervention.

Table IS-Exchange and rural wage rates, t970-82--: Nominal Real Real Rurul ConsumerExchange Exchange Wage Rale Price

Year Rate Index· Rate Index b Index" Index

(1970 c 100)

1970 100.0 100.0 100 1001971 100.0 83.6 IS:! 1161972 93.0 65.3 213 1191973 93.0 114.2 260 1271974 88.7 77.0 2fJ3 1441975 87.3 52.0 300 1611976 88.7 64.7 283 1981977 90.0 84.6 ;~76 2311978 91.5 74.9 265 2691979 84.5 68.0 289 3001980 77.5 74.2 271 331

_ •..iii 1981 83.0 62.7 233 4001982 103.3 709 232 431

" The nominal exchange rate is the naira price of the U.S. dollar.b The real exchange rate is computed as the nominal exchange rate multiplied by an index of trade·weightedforeign prices of tradables divided by the consumer price index.C The ,ural wage rate index is taken from Table I.

•

41

-=;

-- .-

711 EFFECTS OF TRADE AND EXCHANGE

RATE POLICIES

The poor performance of Nigerian agri- tures the foreign price levels of the country'sculture since the 1970s has evoked various imported and exported goods, and the do-policy responses. Some have taken the form mestic price index captur~s the internalof direct government intervention in agri· price level of nontraded ~uods.

- culture with the aim of influencing the For the following analysis, it is conve--structure of incentives.rhey include sector- nient to think of (he real exchange rate as .-specific infrastructural investments as well the ratio of the prices of tradable goods toas administrative price fixing in agricultural the prices of nontradables. A fall in the realinput and output markets. Other more gen- exchange rate implies that the prices oftrad-eral macroeconomic policies also have direct able goods are falling relative to the prices ....and indirect incentive effects on agriculture. of nontradables. On the other hand, an in- L

... These policies, particularly trade and ex- crease means that the price ratio improveschange rate policy measures, either rein- in favor of tradable goods. If the reasonableforce or counteract those directed solely at assumption is made that intersectoral reoagriculture. source flows are sensitive to relative price

changes, it is clear that changes in the real

The Real Exchange Raterate of exchange would tend to affect inter-sectoral profitability, which would induce

and Agriculture movement of resources between differentsectors of the economy. More specifically,

General macroeconomic management a reduction in the real exe 0 rmge rate wouldpolicies impinge on agriculture through tend to divert resources away from tradableschanges in the real rate of exchange, which to nontradables, while an increase wouldplays a critical role in the profitability of accomplish the 0PP0:'ll~.

both export-oriented and import-competing Changes in the terms of trade betweenagriculture. The real rate of exchange mea- tradables and nontradables (or the real rfltcsures the real terms of trade between traded of exchange) are determined by, among otherand nontraded goods. This rate can be mea- variabiu, trade policy and foreign prices. Insured in a number of ways. One is the inter- this ..ase, trade policy refers to changes in ~

nal price level of tradable goods divided by impolt tariffs and export taxes. Domesticthat of nontradable goods. Another is the trade policy operates largely by creating anominal exchange rate multiplied by a for- wedge between domestic and foreign prices.

- eign price index and divided by an internal If an import tariff is imposed, domestic prices-- price index. A third measure is the iatio of of importables will rise above corresponding

• the nominal exchange rate to an index of foreign prices, whereas an export tax ('educes ll>-

the internal wage rate. In both the second domestic prices of exportables relative toand third measures, the nominal exchange foreign prices. The latter change reducesrate is the predominant internal variahle in incentives for the domestic production ofdetermining the domestic prices of trad- exportable goods while inducing an increase f;oables, whereas the wage rate is the primary in domestic demand. This results in reduced

". input into services, which constitute the exports and a shift of resources away frombulk of nontradables. The first and second the exportable sector. If these resources flowmeasures also approximate each other to into the production of nontradables, the ex-the extent that the foreign price index cap- cess supply pressure leads to a decline in

42

their prices. A fall in the price of nontrada­bles relative to the price of tradables imlJliesan increase in the real rate of exchange.Thus, an increase in the export tax tendsto cause an increase in the real rate of ex­change, all other things being equal.

Because an increase in import tariffs en­ables the domestic price of Importables torise above the corresponding foreign price,it increases incentives for their domesticproduction while reducing their domesticdemand. This induces resource movementin Favor of importables and away from non­tradables. Output of nontradables is reducedand an excess demand exerts upward pres­sure on their price. When the price of non­tradable goods increases relative to the priceof tradable goods, the real rate of exchangedeclinzs. All things being equal, an increasein import tariffs translates into a fall in thereal rate of exchange.

In general, a decline of the real exchangerate is a signal that the terms of trade havewOt'sened against the tradable goods sectorand that resources are being diverted to thenontradable goods sector. An increase inthe real rate gives an opposite signal. Theexport crops and import-competing productsare tradables, although agriculture also pro­duces nontraded food crops. For this sector,therefore, a decline in the real rate of ex­change indicates a reduction in the relativeprices of traditional agricultural exports andimport-<.:ompeting products of agriculture.But unlike the manufacturing sector, agri­culture is usually not shielded against theimpact of the relative price changes implicitin a falling real rate of exchange.

Nigeria's import-substitution-industrial­ization strategy implies an inward-lookingtrade regime, which confers substantial pro­tection on import-compet.ing manufacturingactivities.43 This strategy is sustained by aset of high import tariffs, which affect agri­culture in a number of ways. First, importtariffs also tax exports and therefore hurtagricultural pxports. Second, a policy that

protects industry raises the cost of importedagricultural inputs such as machinery, fer­tilizer, and other chemical inputs. Third,and more pervasive, is the effect of industrialprotE-ction on the real rate of exchange. Thereal exchange rate that maintains externalbalance at a given rate of industrial protec­tion is lower than the equilibrium real ratethat would prevail because an increase inimport tariffs corresponds, all things beingequai, to a decline of the real rate. Hence,a given level of protection to industry re­duces the domestic price~ of tradables pro­duced in agriculture relative to the domesticprices of tradables produced in the industrialsector and the prices of nontradable goods.Such reiative output price changes also haveincentive effects in the factor market. Tothe extent that the relative price changesencourage increased dom.;stic productionof import-competing industrial tradables, in­centives are created for labor and otherinputs to move out of agriculture into theindustrial and nontraded goods sectors.

The labor market prOVides a particularlycritical link between the real exchange rateand agriculture. Declines in the relative priceof agricultural output resulting from declinesin the real exchange rate are significantwhether brought about by the Dutch Dis­ease (as discussed in Chapter 6) or by theprotection of industry, or a combination ofboth, as is the case in Nigeria. The labormarket proVides the second component ofthe general squeeze on agriculture resultingfrom a decline in the real rate of exchange.

Becau~e Nigerian agriculture is labor in­tensive, the major constraint on productionappears to be rural labor shortages, espe­cially during peak periods. Labor is also themain input in the nontradables sector,which includes government, public works,construction, and other services. If the realexchange rate declines so that increased in­come from expanded oil revenue or morerapid capital inflow is spent on nontrada­bles, and if a certain level of protection is

~] Nigeria's system of Industrial incentives is analyzed in T. Ademola Oyejide, Tariff Policy and Industrializationin Nigeria IIbadan, Nigeria: Ibadan University Press, 1975)j J. W. Robertson, The Stmcture ofIndustrial Incentivesin Nigeria: 1979·80, Report 1441·0 I IWashington, D.C.: World Bank, ;9811; and T. J. Bertrand and J. W.Robertson, An Analysis ofIndustrial Incentives and l.ocation in Nigeria IWashingtc:l, D.C.: World Bank. 19781.

43

ii-

provided for the import-competing man­ufacturing activities, the result will be morefavorable terms of trade for 110ntradablesand the protected industrial tradables. Con­sequently, labor is induced to move out ofagriculture. Since the labor supply is finite,that available to agriculture is reduced inrelation to its demand, which puts upwardpressure on the rural wage rate. This is likelyto result in substantial increases in laborcosts, which already are a large proportionof total agricultural production costs inNigeria. A fall in relative output prices andhigher relative prices of labor and other agri­cultural inputs has the effect of reducingthe profitability of producing tradable (ex­port and import-competing) goods in agri·culture.

Incidence of Trade andExchange Rate Policies

The following analysis is based on thepostulate that trade and exchange rate pol­icies influence the economy's level andstructure of production incentives and thatthese determine the intra- and intersectoralflow of resources. It is the belief in the po­tency of production incentives for movingresources between different economic ac­tivities that motivated the various price in­tervention measures discussed in previousparts of this report, particularly Chapter 5.

Until recently, previous studies of incen­tive systems and corr~sponding resourceflows in the developing countries have con­centrated largely on the degree of protectionfor competing manufacturing activities bytrade and exchange rate policies.44 Al­though most of these studies did not dealexplicitly with the agricultural sector, theirconclusions indicate, in general, that pre­vailing industrial protection policies in the

developing countries tend to have adverse,though not necessarily intended, effects on'l.griculture, particularly its export compo­nent. The partial equilibrium approachtaken by such studies may have contributedto what seems to be a general underestima·tion of the adverse effects on agriculture ofindustrial protection policies, which favoredimport-competing industrial activities at theexpense of the other sectors.

Analytical Model

Recent theoretical and methodologicaladvances concerning the effects of generaltrade and exchange rate changes, typifiedby the work of Dornbusch and Sjaastad,have established that trade and exchangerate policies often have global economywiderepercussions SUbstantially different fromthat intended by policymakers.45 The effectson agriculture can be quite strong evenwhen such policies :ue not directed specifi·cally at the sector.

The analytical model that reflects thesenew developments is that of a simple openeconomy producing three types of goods­exportables, importables, and home (non­traded) goods. The domestic nominal pricesof the tradable goods are determined bytheir foreign prices, the nominal exchangerate, import duties, and export taxes or sub­sidies. The domestic nominal prices of non­traded goods are determined by domesticdemand and supply factors, which are, inturn, influenced by trade and exchange ratepolicies through the tradable goods markets.

In this model trade and exchange ratepolicies are viewed not in terms of theireffect on nominal prices but of their impacton relative prices. Import duties and exporttaxes (or subsidies) affect the structure ofdomestic prices of importables and export·

\.1 Among the most important of these studies arc flalassa, Tile Structure oj Protection in Developing Countries;I. M. D. Little, et aI., Industry and Tmde in Developing Countries IOxford: Oxford University Press, 1970); AnneO. Krueger, et aI., eds., Trade and Employment in Developing Countries IChicago; University of Chicago Pressfor the National flureau of Economic Research, 1981).·1\ Rudiger Dornbusch, "Tariffs and Nontraded Goods," Journal of Intemarinn.7ll:'conomics 4 11'>741: 177·185;and Larry A. Sjaastad, "Commercial Policy, True Tariffs, and Helative Prices," in Cummt Issues in CommercialPolicy and Diplomacv. ed.). fllack and B. Hindley (New York: SI. Martin Press, 1980).

44

•

­....---

abies relative to the price of non tradable(home) goods. The consequl::nt changes inrelative prices are accompanied by complexand pervasive substitution processes In pro·duction and consumption, which constitutethe real effects of a given set of trade andexchange rate policy changes on intra· andintersectoral resource flows. The analyticalframework provides a methodology for isolat·ing and quantifying the sectoral effects ofany combination of import tariffs, exporttaxes, or subsidies in a given trade and ex·change rate regime.

Trade and exchange rate policy variablesenter the model through the assumptionthat excess demand for importables (Me),excess supply of exportables (X"), and excessdemand for home goods (W) depend onlyon relative prices (Pn/Ph ; PX/Ph ) and realincome (Y), where Prn' Px' and Ph representthe domestic nominal prices of importables,exportables, and home goods, respectively.The domestic relative prices are, in turn,expressed as functions of foreign prices ofexportables (Px.) and importables (Pm')' thenominal rate of exchange (E), import tariffs(tl, and export subsidies (s). The followinp,relationships hold:

Pm/Ph '" (E/Ph)Pm' (1 -1- t), (4)

PJPh = (E/Ph)Px.(1 -/-s),and (5)

Pn/Px = Prn./Px(1 -/- tl/(I -/- s). (6)

Equation (6) implies that the domesticprice of importables relative to the price ofexportables is a function of trade policy vari·abies and foreign prices. The im!losition ofan import tariff raises the domestic nominalprice of importables relative to those of ex·portables and home goods [equations (4)and (6J1. This change in relative prices in·duces consumers", shift demand away fromimportables to exportables and home goods.It also induces increased domestic produc·tion of import-competing importables. Inother words, resources are induced to moveaway from both exportables and home goods

toward importables. In the home goods sec­tor, these processes create a reduction insupply and an increase in demand. The result­ing excess demand places an upward pres­sure on prices until they reacll a new supplyand demand equilibrium. This position issuch that the import tariff has increased thedomestic price of importables reldtlve to theprice of home goods, but by less than thefull amount of the tariff because the nominalprice of home goods has also risen somewhat.

To formalize these relationships, all goodscan be ddined so that their domestic pricesare ur _'J with no trade restrictions. If theworld pl'lces of importables and exportablesare assumed to be constant, the impositionof import duties with a weighted average tand export subsidies whose weighted aver­age is s will set in motion relative pricechanges and substitution effects. The importduties will cause an increase in the price ofimportables and a fall in the price of ex­portables-both relative to the price of homegoods. The export subsidies will, in turn,increase the price of exp')rtables and de­crease the price of importables-both rela­tive to the price of home goods. In particular,if import duties are larger than export sub­sidies (t>s), the equilibrium price of homegoods will rise by an amount that is lessthan t but greater than s. If d represents theincrease in the price of home goods, Sjaastadshows that46

d = s -/- w (t - s) = tot -/- t( 1 - w)s, (7)

where w represents an incidence parame­ter, which, as will be shown later, consistsessentially of parameters measuring substi­tution relationships.

The nominal distortion introduced intothe economy by trade policy is measured asthe difference (t - s), which decomposesinto two terms,

t - s = (t - d) -I- (d - s), (8)

with the interpretation that producers inthe imoort-competing sector receive an im-

::::

<II, Sjaastad, "r.ommercial Policy, True Tariffs, and Relative Prices."

45

where -ym = TIm - Em, yx = 1]x - EX, and

Ad = As = (1]m - Em)(Pn/I\)

+ (1]x - Ex)(PJP,,) = 0. (12)

V= income (GDP),K =, capital,

L labor, and

T technology.

:....

0, (14)

-ym(Ph - Px} + -ym(Px - Pm}

+ yx(Ph - Px}

so that

K, L, and T represent the productive capa­city of the economy; they can, together withV, be held for the purpose of examining thecomparatively static properties of the modelwherE; the primary interest is the movementof relative prices. Thus, after an initial dis­placement, the system achieves a new equi­librium, where

In this expression, 'lm and 1]x represent thedemand elasticities for home goods with reospect to the prices of importables and ex­portables, and Em and Ex are the correspond­ing supply elasticities, whereas the (A) overa variable denotes a proportional change.Equation (12) is then expressed as

-ym(Ph - Pm} + -Yx(Ph - Px) = 0, (13)

plicit subsidy given by the term (t ... d) ratherthan the nominal import tariff rate t, whereasthe remainder (d - s) represents the propor­tion of the total distort ion shifted in theform of an implicit tax on producers of ex­portables. What governments can determinethrough their trade policies is the size ofthe total distortion (t -- s). They cannot de­cide how this is ultimately allocated betweenthe import-competing and exportable sec­tors of the economy.

This result implies that to protect anyone sector, other sectors have to be penal­ized, and that the degree to which the pro­tection of one sector causes damag2 to othersectors depends on substitution relationshipsin production and demand. Thus, an importduty meant for protecting some import­competing manufacturing activities may infact be shifted partially or completely trans­formed into a tax on producers of export·ables, for example, of agricultural exportcrops. In the same way, an export subsidydesigned primarily to encourage the expan­sion of the exportables sector may wind uppanly or Wholly as an import subsidy.

The incidence parameter (w) referred toin equation (7) is derived explicitly withinthe framework of the three-sector modelin which general equilibrium is impliedby either the trade account equilibrium orequilibrium in the home goods market. Itis analytically convenient to use the generalequilibrium market clearing properties ofthe home goods sector for determining theequilibrium price relations,hips among thethree sectors. Equilibrium in the home f,0odssector implies home goods demand (H' ) andequals home goods supply (H S

):

(9)

where the home goods demand and supplyfunctions are expressed as

where w = -ym/-ym + yX (with °~ w ~

I) is the incidence parameter referred toearlier. Equation (15) is rewritten as

(10) (16)

and

W = H' (Pn/Ph' Px/P,,, K, L, T), (I I)

where

with d representing the derivative of thenatural logarithm of the bracketed variables.Upon integration (assuming (,) constant),equation (16) is transformed into

46

In (P,/Pxl =-.c constant

+ 10)ln(Pn/Px) + error term, (17)

Table 16-Regression results fortotal exports

Notes: Three variables are used as proxies for homegoods. The price indexes for housing (H 1) andfood (H2) are the relevant components of theconsumer price Index. The third proxy (H3) isthe index of the minimum wage rate. Pxr is theprice of total exports.

PM is the price of imports and Px, that ofexports; Y Is incomei and BT is the trade bal·ance.

The numbers in parentheses are standarddeviations.

Constant 0.M12 -0.7805 0.111212.39121 1-2.00201 (2.46101

In(l\/Pxrl 0.9021 0.8351 0.5518112.5960) (7.8673) (6.2113)

In Y -0.1156 0.1885 0.1953(-2.39161 (2.73951 (2.5286)

Ill' -0.0213 -0.0342 0.0011(-3.4712) (-4.7201) (0.0631)

f{2 0.985 0.924 0.743

D.W. 1.564 1.358 1.958

I' 0.425 0.972 -0.044

port and unit export values in naira. Foreach of t:lese export categories, three vari­ables are used as proxies for home goods.The price indexes for housing (H I) and food(H2) are the relevant components of thecomposite urban and rural consumer priceindex. The third proxy of home goods is theindex of the minimum (legally established)wage rate (H3). Sources and data for all ofthe variables used are given in the Appen­dix, Tables 24·30.

The statistical characteristics for all re­gression results are quite good. The adjustedfit is reasonably good, being more than 0.7in all but three of the 18 equations. Al­though the estimated coefficients for theadditional variables Yand BT are mixed insign and level of statistical significance, es­timates of the incidence parameter are

=-

Dependent VariableIndepen­dentVariable

which is the basic regression equation forestimating the numerical value of (I). Thisequation may be dlsaggregated as necessaryto take account of several exportable andimportable subsectors.47

Empirical Results

The (0) parameter measures the com­bined effects of trade and exchange ratechanges and shows how the burden of theconsequent changes in relative prices isshared among the sectors. The numericalvalue of II) reflects the proportional changein the price of home goods relative to theprice of eX;Jortables as a function of theproportional change in the price of import·abies relative to the price of exportables. Inestimating the global and disaggregated formsof the incidence parameter, an importantmodification is required before equation(17) can be used. Estimation based on time·series data would violate the assumption,made for analytical convenience, of constantincome and productive capacity (measuredby given stocks of K, L, and T), and of abalanced external account. Hence, income(Y) as measured by COP and balance of trade(BTl have to be included as additionalexplanatory variables in the regressionequations.

The regression equations are estimatedon the basis of annual data for 1960·82.The Cochrane-Orcutt iteration techniquewas used to correct for first-order autocorre­lation for all estimated regression results inTables 16 to 21. In addition to total exports(XT), estimates are produced for agriculturalexports (XA), oil exports (XO), cocoa exports(XC), groundnut exports (XC), and palmkernel exports (XP). The price indexes forimports and the various export categoriesare constructed from corresponding unit 1m·

...

-17 Disaggregation follows Jorge Garcia Garcia, Tile Efft'cts ofExcllange Rates and Commercial Policy on AgriculturalIncentives in Colombia: 1953-1978. Research Report 24 (Washington, D.C.: International Food Policy ResearchInstitute, 19811. In this study, only exports are disaggregated as indicated SUbsequently in the text.

47

Table 17-Regression results for Table t8-Regression results foragricultural exports oil exports

Indepen'Dependent Variable

Indepen'Dependent Variable

d~nt dentVariable In(PIII/PXA) In(I'Ill/PxA) In(PIlJ/PXA) Variable In(PIt/Pxo) In(Pltz/Pxo) In(PflJ/Pxo)

Constant 0.5208 0.440 I -0.9532 Constant 0.4437 0.0413 0.2310(2.55801 (1.4798) 1-3.5151 ) (1.1528) 11.1(36) (3.13221

In(PM/PM) 0.8221 0.8165 0.8435 InIPM/Px,,1 0.6327 0.5143 0.6911(10.0050) (6.6262) (6.2941) (8.81681 (10.1500) (7.';'~97)

InY -0.0195 0.2225 0.0156 In Y 0.19/1 -0.0895 0.0369(-3.15561 (4.78161 (2.3401) (2.1517) (-1.2602) (3.10291

I3T -0.0867 0.0531 0.0045 BT -0.0349 -O.OOM 0.0963(-2.51361 (0.0050) (1.4406) (-4.8149) (-0.6298) (6.37141

iF 0.860 0.881 0.85 I f{2 0.941 0.887 0.881

D.W. 1.894 1.385 1.507 D.W. 1.449 1.958 1.515

p 0.728 0.417 0.916 p 0.966 0,139 0.502

...:

Notes: Three variables arc used as proxies for homegoods. The price indexes for housing (H I) andfood (H21 are the relevant components of theconsumer price index. The third proxy (H31 isthe index of the minimum wage rate. PXA isthe price of agricultural exports.

PM is the price of Imports and Px, that ofexportsj Y is income; and I3T is the trade bal­ance.

The numbers in parentheses are standarddeviations.

statistically significant in all cases at conven·tional levels.

The estimated numerical values ob­tained for OJ for all categories of exports andhome goods are displayed in Table 22.These results indicate that the degree ofincidence of trade and exchange rate poli­cies on exports is very high. The relativelyhigh estimates of the incidence parametermay be partly explained by the fact thatannual data were used to generate them;intrayear variations in relative prices aretherefore not adequately captured. How­ever, a high omega value would, in general,imply that Nigeria's home goods and import·abies are fairly close substitutes. It wouldalso reflect that Nigeria's ex..ortables, beingprimarily resource·based (oil) or agriculturalproducts, are fairly inelastic in supply.Hence, they tend to absorb a large propor·

Notes: Three variables are used as proxies for homegoods. The price indexes for housing IH I) andfood (H2) are the relevant components of theconsumer price index. The third proxy (H3) isthe Index of the minimum wage rate. PXl> isthe price of oil exports.

PM Is the price of imports and Px' that ofeX!lortsj Y Is incomc; and BT is the trade bal·ance.

The numbers in parentheses are standarddcviations.

tion of the tariff incidence in the form ofreduced rents to the natural resource orland. Note also that the inclusion of interac­tion terms in the estimated regression equa­tions for disaggregated exports does notalter the basic r~su(:s, as can be seen inTable 31 of the Ap:·)cndix.48 For total ex·ports, estimates of the incidence parameterrange from 0.55 to 0.90; they are moreconcentrated for agricultural exports, vary­ing from 0.82 to 0.84. The range of w forcocoa exports is between 0.83 and 0.86.The incidence is much lower for oil exports(0.51 to 0.69), while that for groundnutexports is from I) .61 to 0.82, and that ofpalm kernels lies between 0.66 and 0.79.

These results imply that a tariff on im­ports falls almost entirely on producers ofexportable goods. It may be inferred, there·fore, that Nigeria's prevailing trade and ex·

4H For similar results, see Larry A. 5jaastad and K. W. Clements, "The Incidencc of Protection: Theory andMeasurement," a paper prepared for the Conference on the Free Trade Movement in Latin America, Hamburg,F. R. Germany, June 21·24, 1981.

48

...

Table 19-Regression results forcocoa exports

Table 20-Regression results forgroundnut exports

Indepen­dentVariable

Dependent VariableIndepen­dentVariable

Dependent Variable

--

COllst~nl ON)40 -0,7175 -·1.011lJ I12.lJ5fJ4) 1-2.4/1f)2) (-2.f)1l55)

In(I'I.,1l'xcl 0.8558 O,82f)0 0.1l325(r).051141 (5.34511 14.3(71)

In Y -0,1131 0.1f)11 0.22481-3.0(lI2) (4.1040) (4.06371

liT -0.0191 0,0846 0.015lJ(-3,12471 (5A2116) 10.81193l

I{l. 0.<J311 0.577 0.411f)

D.W, 1.640 1.4511 1.726

I' n.57!) 0,377 0.254

Notes: Three v"riables ~re used as proxies for homegoods. The price indexes for housing (H II ~Ild

food (H2l ~re the relcv~nt componen,s of theconsumer price index. The third proxy IH31 isthe index of the minimum wtige r~te. I'xc: isthe price of coco~ exports.

I'M is the price of imports ~nd l'x. that ofexports; Y is income; ~nd liT is the trade b~l·

~nce.

The numbers in p~rentheses are st~nd~rd

devl~tions.

change rate policies, which are designedlargely to protect import-competing man­ufacturing activities, have also substantiallyreduced the relative incentive to produceexport goods vis-a-vis home goods. The oilsector has had a significant adverse effecton agriculture as shown in Chapter 6.

The Dutch Disease phenomenon haspenalized import-competing manufacturingactivities and especially agricultural exportsbecause of agriculture's labor constraints.In addition, general trade and exchange ratepolicies have given more explicit importprotection to manufacturing activities thanagriculture. Consequently it seems clearthat both the Dutch Disease and trade andexchange rate policies have had the cumula­tive effect of taxing agriculture.

Because lr.ost of the protection for theimport-competing activities has been at the

Constanl O.637<J -0.7046 ·-0.9202(2.55061 H.9()73) (-3.7115)

11l(1\,1l'xd O.1l22 I 0.6522 0,607lJ(o.1l6221 (3.50lJlll (3.55401

IllY -0.1070 0.1863 0.2004(-2.6360) 13.25891 (5,0756)

liT 0.0876 -0.0300 0.0405(6.2254) 1-3,7407) (1AOM)

IV 0.927 0.853 0.597

D.W, 1.588 1,391 1.839

It 0.617 0.973 0.132

Notes: Three variables are used as proxies for homegoods. The price indexes for housing IH I ) andfood (H2) a.e the relevant components of theconsumer price index. The third proxy (H3) isthe index of the minimum w~ge r~te. Pxr; isthe price of groundnut exports.

PM is the price of imports and Px• th~t ofexports; Y is Income; and BT is the trade bal·ance.

The numbers in parentheses are standarddevi~tions.

expense of the exportable (primarily agricul­tural) sector, an export subsidy for agricul­tural crops could be justified as a means ofameliorating the adverse effect of industrialprotection. Instead, Nigeria's agriCUlturalexports have traditionally been taxed. How­ever, an examination of protection policyfor cocoa, groundnuts, and palm kernel for1979-82 indicates that in more recent yearsexport tax rates have declined, and in somecases negative taxes for subsidies have oc­curred. Thus, nominal rates of protectionincreased from negative rates through mostof the 1960s and 1970s to positive valuesfor some commodities by 1982.

These nominal protection rates are re­produced in Table 23 with their signsreversed to represent direct export taxes.Import tariffs in Nigeria between 1979 and1982 averaged about 50 percent.49 Given

...

,I" Given the predominant use of quantitative restrictions during most of the 1970·82 period, the equivalentuniform ad valorem tariff is likely to have been considerably higher than the average nominal tar:ff of 50 percent.Therefore, the average tax burden Is probably much higher than the estimates presented in the text.

49

::..

--1IIIIi

Table 2 I-Regression results forpalm I(ernel exports

Table 22-Range of values foromega estimates

Indepen·dentVariable

Depimdent Variable ExportEstimated

Omega Values

Sources; Derived from Tables 16-21.Note: Omega is the name given to the Incidence of

protection parameter.

COII~lanl 0.4 I9() 0,4()f)() --0.n82(2,15721 II,G9441 (-3.44311

III(I\/Pxl') O.MIIl 0.695() 0.793614.47721 14.2285) 12.68311

In Y --U.0662 0,21l9S 0.22091-2,05911 (4.7081>1 (4.G 1,!91

liT -0.01 B9 -0.0305 0.0749(-3.0390) 1--3.73781 12.4(98)

Ill. 0.B53 0,1)70 0.7118

D.W, 2.031 1.131 1.414

I' 0,600 0.731 0.431

Total exp()rt~i\l~ricllllllral export:;OilCocoaGrollndnutsPain, kernel

0.55 - o.riO0.1I2-0.B40,51-0.690,1I3-0N)0.61-0,1120.M-0,79

Notes: Three variables are used as proxies for homegoods. The price indexe~ for housing IH II andfood (H21 are the relevant components of theconsumer price index. The third proxy (1-131 isthe index of the minimulll wage rate. I'XI' is theprice of palm kernel exports.

I'M is the price of imports and Px' that ofexports; Y is income; and BT is the trade bal­ance.

The numbers in parentheses are ~tandard

deviations.

explicit tax of I percent. In spite of a subsidyof 18 percent in 1981, the total tax ratewas 18 percent in 1981. Palm kernel pro·ducers appeared to have fared slightly bet­ter. But in general, it is clear that becauseof the very high value of the incidence paramoeter, the protection prOVided in recent timesfor agricultural export crops has not suffi·ciently compensated for the adverse effectsof the prevailing trade and exchange ratepolicies.

-

the estimated average incidence parameterTable 23-Explicit, implicit, andvalues of 0.834 for cocoa, 0.715 for ground·

nuts, and 0.725 for palm kernels, the corre- total taxes on cocoa,sponding implicit taxes on these commodities groundnuts, and palmemanating from the average import tariff kernel exports, 1979-82are 42.25 percent, 35.75 percent, and 36.25

Crop/Taxes 1979 1980 1981 1982percent respectively. Total taxes by com·modity are made up of the direct (explicit) (percent)and implicit taxes. The total export tax fall· Cocoaing on cocoa producers was as high as 80 Explicit 38.00 8.00 -33.00 -26.00

percent when the implicit component of Implicit 42.25 42.25 42.25 42.25

the tax was accounted for. This tax burdenTotal 80.25 50.25 9.25 16.25

dropped to 18 percent in 1981 but rose GroundnutsExplicit 1.00 11.00 -18.00 n.a.

again to 16 percent by 1982. The subsidies Implicit 35.75 35.75 35.75 35.75

provided in 1981 and 1982 were insuffi· Total 36.75 46.75 17.75 n.a.

cient to offset, in a countervailing sense, Palm kernel

the adverse effects of the import tariff. Simi· Explicit -3.00 0 -31.00 n.a.

larly, groundnuts carried a tax burden ofImplicit 36.25 36.25 36.25 36.25lotal 33.25 36.25 5.25 n.a.

- about 37 percent in 1979, instead of an-

50

-

...::

8CONCLUSIONS

Nigeria's agriculture suffered (In extraor­dinary decline during thc pcriod 1970-82,as the oil boom provided thc impctlls for ahigh ovcrall economic growth rate, but ithas rcmained an important sector of thecconomy. Although its share of both GDP,md total exports fell substantially, agriculturestill accounted for abollt 60 percent of thetotal labor force at the end of the period.Shortages and high costs of labor have playeda central role in agriculture's decline. Niger­ia's agriculture is unusually labor-intensive.Availability of off-farm employment oppor­tunities, especially in the rapidly growingurban services ~ector, combined with theintroduction of universal primary education,added impetus to the rapid urbanization.Increased dependence on hired labor andsharp increases in the rural wage rate with­out a matching increase in productivity meantthat labor became a powerful constraint onagricultural output growth.

The rather severe increase in the costof agricultural inputs does not appear to havebeen sufficiently offset by corresponding in­creases in output prices. The retail food priceindex rose about 18 percent above the com­posite (rural and urban) consumer price in­dex (CPI) during 1970·82, but farm-gateprices for domestic food crops declined rel­ative to the overall CPI. Producer prices forexport crops, however, alternately rose andfell throughout 1970-82.

Agricultu re's poor performance attractedincreased policy attention to the need toprovide effective growth incentives for thesector within the general policy goal C'fmain­taining viable nonoil tradables during andafter the oil era. To achieve this goal, Nigeriaadopted a wide range of policies directedtoward improving agriculture's performance.One set is aimed at improving the farmers'production environment. This includedproductivity-increasing measures such asresearch and development for seed improve-

ment and multiplication, creation and adap·tation of lcchnology, provision of extensionservices, subsidized rural credit, and ruralinfrastructlJral development. Other policymeasures dealt with the size and price ofagricultural imports and exports, and theprices, importation, and domestic produc­don of agricultural inputs (particularly fer­tilizers and capital equipment). The last twocategories relate to the trade and exchangerate regime, which is the primary focus ofthis study.

Nigerian trade and exchange rate poli­cies have had pervasive effects on agricul­ture through their influence on the sizesand prices of agricultural imports and ex­ports as well as intermediate agriculturalinputs and agricultural capital equipment.Estimates of effective protection indicate thatagricultural price intervention measures im­plemented largely through the trade andexchange rate regime appear to have increas­ingly protected domestic production of agri­cultural crops from external competition.For most of 1960-82, however, this simplymeans that the rate of implicit taxation ofagricultural exports was decreasing. Exportcrops did not begin to receive positive pro­duction incentives through protection untilthe early years of the I 980s.

Import-competing food crops appear tohave been receiving substantial protectionagainst imports since at least the mid-1960s.However, these policies have been imple­mented largely through quantitative restric­tions. It is not clear whether the level ofprotection resulted from deliberate policychoice or was a by-product of other macro­cronomic concerns (for example, the bal­ance of payments). In any case, because ofthe way they have traditionally been usedin Nigeria, quantitative import restrictionmeasures involve wide short-term fluctua­tions in magnitude and direction. Hence thelevels of protection apparently provided for

51

...

food and export crops did not often indicateconsistency and stability In policy Intentions.In fact, a careful analysis of the relationshipbetween the observed changes in the domes­tic export and cocoa export price indexes,t.he nomln,,1 exchange rate, and t.he nominalrat.e of protection implies that the realizedlevels of protection al'e rather insignificant.They are therefore not. necessarily condu­cive to positive and sustained output supplyresponse.

The oil boom had a major impact onintersectoral resource movements, particu­larly for agriculture. The boom, which origi­nated from large increases in crude petroleumoil prices in 1973/74 and 1979/80, hassubstantially transformed the structure ofthe Nigerian economy. The general effectsof the boom on the nonoil tradable sectorsas analyzed through various models of theDutch Disease include loss of competitive­ness by the nonoil tradable sectors (as re­vealed, for instance, by falling relative prices);unfavorable intersectoral resource move­ments resulting in loss of relative shares oftotal output and employment; an upwardtrend in the real wage ratej and an appre­ciation of the currency. The structural trans­formation of an economy brought about bya resource boom involves not only substan­tial intersectoral shifts but also an overallexpansion. This study reveals that the agri­cultural and manufacturing sectors (that is,the nonoil tradables) both had significantlosses of output and employment shares be­tween 1970 and 1982, whereas the servicessector had impressive gains. When totalchanges in output and employment are ana­lyzed, however, it is clear that all sectorsgained, in varying degrees, from Nigeria'soil boom. In agriculture and manufacturing,lower relative shares of output and employ­ment were largely compensated for by gainsresulting from overall economic growth.The services sector was the primary overallbeneficiary of the boom during 1970-82.This ser:tor absorbed almost half of the totalincrease in output and about 70 percent ofthe increase in employment.

The loss of competitiveness by the non­oil tradables predicted by the Dutch Diseasemodel shows up clearly when the interna·

52

lional and domestic prices of agriculturalcrops are compared. hlr Instance, the Indexof real cocoa export prices l'emalnecJ de­pressed between I(no and I()82, while thereal domestic prices offood and export cropsshowed a significant downward trend. Agri­culture's general loss of competitivenesslargely arises from trends in the real ruralwage and exchange rates. Agair. as predictedby the Dutch Disease model, the real ex·change rate declined through 1970-82, ex­cept for 1973. In terms of its extemal value,the naira appreciated more than 50 percentbelween 1973 and 1980 while the esti­mated real rural wage rate tripled. This con­dition led inevitably to agricultl\.re's substan­tial loss of competitiveness.

The extent to which the prevailing tradeand exchange rate policies offered effectiveincentives to agriculture can be establishedby analyZing estimates of the incidence ofprotection parameter, which is calledomega. This shows how the burden ofchanges in relative prices are shared amongvarious sectors of the economy. The numer­ical value of omega reflects the proportionalchange in the price of home goods relativeto the price of exportables as a function ofthe proportional change in the price of im·portables relative to the price of exporta­bles. In this study, the numerical estimatesof omega range from 0.55 to 0.90. Theseestimates indicate that the degree of inci­dence of trade and exchange rate policieson exports is high. This Implies that theimpact of a tariff on imports falls almostentirely (55 to 90 percent) on producers ofexportable (agricultural) products, eitherbecause Nigeria's home goods and importa­bles are fai:'ly close substitutes or becauseNigeria's exportables, which are primarilyresource-based and agricultural, are fairlyinelastic in supply,

The effects of developments in the oilsector have been more adverse to agricul­ture than to manufacturing, mainly becauseof agriculture's labor constraints. In addition,general trade Olnd exchange rate policies haveoffered greater explicit import protection tomanufacturing. Consequently, it seems clearthat both the Dutch Disease phenomenonand the trade and exchange rate regime taxed

ralher than protected agrlcultUi'e, Subsidiesprovided in the I ()BOs for several agricul­tural (~xport crops have not been sufficient10 ('ffset the advcrse crfccts of the all boomand gencr<ll trade and exch,lIlgc rate policies.

Various studies confirm that the supplyof Nigerian agricultural crops is responsiveto price changes.c,o But the fairly low short­run price-clasticity estimates obtained would<lppeilr to indicilte th<ltrel<ltive price changesinduced by trade and exchange rate policicsare probilbly not sufficient to bring about asubstantial ilnd sustained expansion of agri­cultural output in Nigeria. In other words,changes in the trildE' ilnd exchange rail' re­gime would need to be accompanied by newtechnologies, improved seeds, developmentand expansion of I'll rill infrastructure, andother productivity-raising :'ural investmentin order to sig'1ificantly boost long-termgrowth performance.

The Nigerian er:onomy remains essen­tiilily open in spite of the pervasive use ofqUilntitative import restrictions and foreignexchange can trois. The tradability of mostof the agricultural products means that agri­cultural prices, trilde policy, and exchangerate changes are inevitilbly linked. Hence,agricultural price intervention alone is un­likely to be effective, Furthermore, if onlythe industrial sector is protected, much ofthe burden or ,~(jiustment will fall on agricul­ture. Therefore, in designing policies it isimportant to ensure that the full implica­tions of trade and exchange rate policies forboth agricultural and nonagricultural sec­tors are explicitly recognized and taken intoconsideration.

The Nigerian oil boom has had a signif­icant adverse effect on agriCL'ltural incen­tives. The capital flows associated with theboom, which depressed the real rate of ex­change, and the domestic spending and re­source movements progressively turned theterms of trade against the nonoil tradables,particularly agriculture. Unlike manufactur­ing, these sectors had no effective counter-

vaillng, sector-specific protection 1'1'0111 theIradc and exchange rate regi me. The ad­verse effects of Ihe oil boom on the nonoiltradables could have been ameliorated byexporting surplus capital or by aCClllTIlIlilt ingforeign exchange reSNves, foreign invest­ments, and repayment of foreign debts. Thiswould have enabled the country to gmduallyrepiltriate the surplus funds over time toIinance domestic investment with sufficientlyhigh yields without causing wide fluctuationsor sharp depression in the real ri:lte of ex­change. Unfortunately, Nigeria's manage­ment of its oil revenue appears to have beenthe direct opposite of this. Hence, the adverseeffect of movement in the real exchant;e rateon the largely unprotected agricultural trad­ilbles sector was progressively worsened byfurther foreign indebtedness. Between 1976and 1982, total public and publicly guaran­teed disbursed debt rose from less than U.S.$\ billion to almost U.S. $12 billion. Perhapsthis monumental macroeconomic manage­ment failure can best be explained as a lackof political will to resist generalized andspecial-interest pressures.

Additional questions of significant pol­icy relevancp. arose during this study. Oneconcerns the extent to which trilde and ex­change rate policies need to be accompaniedby other policies, particularly in the insti­tution, technology, and infrastructure areas,in order to achieve agricultural output growthtargets. Another major unanswered ques­tion is the relationship between changes inthe reill exchange rate and the labor flowbetween rural and urban actiVities. The im­pact of real exchange rate changes on pro­duction incentives must recognize and takeaccount of the labor market as a means oftrilnslating apparent protection into effectiveincentives. These and related questions callfor more detailed research for a more com­prehensive understanding of the forces thatcurrently impede the expansion of agricul­tural output in Nigeria.

~-.­i!!.

'-

.:

," Results of these studies can be fuund in M, E, Bond, "Agricultural Hesponses to Prices in Sub-Saharan AfricanCOlJntrie~;." IMF Staff Papers 3C (December 10831: 703·7Ul,

53

..... APPENDIX:SUPPLEMENTARY TABLES

Table 24-Producer prices of major agricultural crops, 1963·82

Year Cocoa Cotton Groundnuts Palm Kernels PalmOll Soybeans BennlseedJ

IN/metric ton)

1963 212 118 78 54 110 46 901964 232 Q2 82 54 110 46 Q21965 122 94 84 56 87 46 Q21966 172 90 84 54 80 46 Q21967 182 86 74 56 82 46 Q21968 192 110 50 51l 112 36 941969 262 lOll 55 57 81 37 751970 295 108 63 57 81 37 8111)71 297 108 (J7 61 89 37 811972 297 122 75 61 89 37 81- 1973 354 132 80 61 119 47 1051974 487 156 145 124 204 60 1691975 660 301l 250 150 265 99 264 r1976 660 308 250 150 265 91) 2641977 660 308 275 150 295 130 2641971l 1,030 330 350 150 355 135 2901979 1,200 330 350 180 450 135 3001980 1,300 400 420 200 495 150 30019111 1,300 465 420 200 495 155 31519112 1,300 510 450 230 495 175 315

Sources: Nigeria, Federal OfFice of Statistics, Economic and Social Statistics (Lagos: FOS, various years); CentralBank of Nigeria, Annual Report and Statement of Accounts (Lagos: CBN, various yearsl; and CentralBank of Nigeria, Economic and Financial Review, various issues.

Table 25-0utput indexes of major agricultural crops, 1965·80

Year Cocoa Groundnuts Rice Maize Cassava Yams L

(1965 = 1001

-= 1965 100.0 100.0 100.0 100.0 100.0 100.01960 100.0 85.6 87.9 91.5 102.5 100.01967 89.1 78.8 170.0 88.8 104.9 89.11968 71.9 91.7 155.8 85.4 107.6 71.91969 82.8 93.3 143.5 126.7 110.5 82.8 -

~~

1970 114.2 79.9 151.4 116.8 124.7 114.21971 96.3 78.5 171.3 84.4 112.1 96.31972 90.3 47.8 197.4 95.7 116.9 90.31973 80.5 17.7 215.0 49.2 117.3 80.51974 80.1 20.2 231.8 109.3 122.3 80.11975 80.5 14.2 227.4 113.3 129.6 80.51976 61.8 25.3 170.9 116.9 132.0 61.8

':: 1977 75.7 15.3 180.1 121.4 129.5 75.7- 1978 59.9 22.8 227.4 133.1 128.3 59.9

1979 67.4 27.2 264.9 134.9 128.3 67.41980 65.5 28.2 320.1 139.4 134.4 65.5

Sources: Nigeria, Federal Office of Statistics, Economic and Social Statistics (Lagos: FOS, various years); CentralBank of Nigeria, Annual Report and Statement of Accounts (Lagos: CBN, various years); and CentralBank of Nigeria, Economic and Financial Review, various Issues.

54

~

, TablE: 26-lndexes of domestic prices of major food crops, 1965·80

Ycar Hice MlIlzc Cassava Yams

II rJ()S 1001

IWJ'i 100.0 100,0 100.0 100.0111M 12(J.2 146.0 17'i.3 1411.0I()()7 II S, I 1)5.7 11 1).0 \07.11II)Ml 114,5 100.7 103,3 100.0\1){)9 1Ul,1 144.4 (l7.0 117.0 ::

--;;; 11)70 \41,(, 137.0 116.4 \57.0197\ 185,0 IIW.2 1111.0 248.0IIJ72 141J.{J I?4'0 135,0 21 1J.5IfJ73 140,1 In.o 112,4 2M.0\974 180,3 I()5.0 123.5 612.2\fJ75 IrJll.4 204.0 213.0 422.1IIJ7() 2()5.3 312.0 307.0 489.6IIJ77 313,6 443.0 414.4 826,21rJ78 373,0 443, I 539.2 \,111,2 !"IfJ7rJ 400.0 SIIO.O 520.0 1,\20.01980 MJ5.4 541').5 509.3 1,132.0

- Source~;: Nigeria, Federal Office of Statistics, Economic and Soci,lI Sta(is(ics (Lagos: FOS, various years); CentralBank of Nigeria, Annual Report and Statement of Accounts Il.agos: CBN, various years); and CentralBank of Nigeria, Economic and Financial Review, various Issues, =-

Table 27-Price indexes for selected t~xport crops, 1960·82

All Agrlcul-Year tural Exports Cocoa Groundnut~ Palm Kernels

1\ 960 O~ 100I

1960 100.0 100.0 100.0 100.01961 87.6 69.2 102.3 \00.01962 81.9 61.5 95.5 86.21963 87.6 64.7 88.6 86.2

~-

1964 88.2 67.9 88.6 93.11965 89.6 74.4 93.2 93.1\966 89.3 39.1 93.2 93.11967 91.6 57.1 93.2 96.61968 94.1 60.3 70.5 100.01969 10B.0 85.3 63.6 98.31970 104.7 94.6 71.6 98.3 •1971 96.9 95,2 76.\ 105.2 I':...1972 U5A 95.2 85.2 105.2 -1973 149.4 113.5 90.9 213.8 !Ii=1974 201.5 156.\ 164.8 258.61975 136.4 211.5 284.1 258.6

--: 1976 169.3 211.5 284.1 258.6 •1977 340.4 330.1 312.5 258.61978 293.7 330.1 329.5 310.31979 293.1 384.6 397.7 310.31980 204.4 384.6 397.7 344.81981 233.4 416.7 477.3 344.81982 214.2 416.7 477.3 344.8

Sources: Nigeria, Federal Office of Statistics. Economic and Social Sta(istics (Lagos: FOS, various years); Central;;;Dank of Nlg~rla, Annual Report and Statement of Accounts ILagos: CDN, various years); and Central

...: Dank of Nigeria, Economic and Financial Review, various Issues. f::

~-

i-55

...

Table 28-Index of agr.icultural production, 1975 ..82

AKKregateYear Index All Crops Staple Crops Other Crops._----

11l)7) 1001

1975 100.0 100,0 100,0 100,01976 (n.t) UII.II 11/1.7 119.1

- 1977 IIn.7 7° ~ 75.7 ()4.0-If)711 flU.5 7,..,/ 70,fl f)f).1I ()7() 87.2 73,9 (J4.4 104,0I ()flO fll),4 77.7 (,7.l) 109,41981 92.4 U4.3 70.1 115.1I f)82 91.9 115.5 74.7 120.3

....

-.!Source: Central Bank of Nigeria, Allnllill Hepar( ilnd Stiltement oj Accol/llts (Lagos: CIlN, various yearsl,

"-

Table 29-Guaranteed minimum prices for food crops, 1976·82--• Garl

Mlllet/ Rice Rice (ProcessedYear Sorghum Maize (Paddy) (Milled) Cassava) Yams Beans Wheat

IN/metric IOnl

1976 110 95 185 Ill; 851977 110 130 240 400 110 120 1801978 110 130 240 400 110 120 1110)979 220 200 329 570 345 2351980 220 200 329 570 345 2351981 231 210 345 596 362 247 -1982 231 210 400 596 362 280

:II Sources: Ni.geria, Federal Office of StatiMlcs, Economic alld Social Sf<1tistics (Lagos: FOS, various years); CentralBank of Nigeria, Annual Report and Statement of Accounts (Lagos: CBN, various yearsli and CentralBank 'If Nigeria, Economic and Financial Review, various issues.

56

Table 30-Domestic price indexes, 1960·82

l-IomcGoodsilL

Exportablcs Imllortables I-Iousln~ Pood MinimumYear (P,) (P,n) (PhI) (Ph') Wage (PhI)

(I W,O 1001

1i}()0 100.0 100.0 100.D 100.D 100.01%1 I) I.B 100.0 104.1) 108.0 100.01%2 B7.4 1)1).5 10(1.0 114.7 100.011)63 1)l.B IoU 1011.6 106.5 100.0IW,t. 76.3 103.1 lor).4 110.7 100,01l)(,5 7().] 104/) 116.9 I 13,(, 100.0II)M 76.3 107.4 i 19.5 130.5 100.01967 76.3 107.6 124.4 120.1 100.019M1 7().] 10('.9 125.8 112.6 100.019(,1) 76.3 110.5 121).3 133.9 100.011)70 76.3 115.9 137.3 ~M.4 137.01971 104.1 131.4 147.0 '21 1.4 137.01972 104.3 143.5 156/) 216.6 137.0II}? 3 424.\ H,I.I 15(J.4 21;3.6 137.011)74 40().2 235.3 1(,0.7 25ll.Q 462.0

..:: II}?S 421.7 255.7 203.1 367.7 462.019U, 465.3 257.4 212.3 4M.7 4(12.01977 53 J.5 270.9 258.3 539.4 462.01978 522.0 303.4 2M.9 632.1 462.01971) 713/) 405.6 339.0 (JIlZ.8 462.01980 115.4 474.6 3(,0.\ 734.7 7(,1).01981 1,3M,.I) 390.0 351.7 920.1 7(J9.011)82 1,592.0 367.2 365.(J 1,001.6 962.0

Source: Nigeria, Federal Office of Statistics, Economic ilnd Soeiill Stalisties ll.agos: FOS, various yearsl.Note; I-lousing and food prices are components of the composite consumer price index.

... 57

Table JI-Supplementary regression results for aggregate exports

IndependentVariable

Dependent Variables

Constant

In(l',/Pw )

illD.W.

58

0.2513(2.4090)

0.8205(5.5514)

-0.00:15(-0.2316)

0.750

1.920

0.5fJ60(2.86101

0.83()lI(7.9840)

-0.0013(-0.05311

0.823

1.708

0.4123(1.0Ill2)

0.5539(4.7192)

0.0145(0.0002)

0.872

1.045

0.3920(1.2571 )

0.7539(5.4066)

-0.0030(-0.0600)

0.897

1.891

0.8532(2.1705)

0.6893(3.0573)

-0.0405(-1.00391

0.733

1.741

-=

BIBLIOGRAPHY

Armington, Paul. "A Theory of Demand for Products Distinguished by Place of Production."IMF Staff Papers 16 (March 1969): 159-178.

BalassCl, Bela. The Structure ofProtection in Developing Countries. Baltimore: johns HopkinsUniversity Press, 1981.

Bautista, ROIfieo M. "Effects of Trade and Exchange Rate Policies on Export ProductionIncentives in Agriculture: The Philippines." Washington, D.C.: International roodPolicy Research Institute, 1984 (mimeographed).

Bertrand, Trent j. and Robertson, j. W. An Analysis of Industrial Incentives and! ocationin Nigeria. Washington, D,C.: World Bank, 1978.

Bhagwati, Jagdish N. Anatomyand Consequences ofExchange Control Regimes. CambrIdge,England: Ballinger for National Bureau of Economic Research, 1978.

Bond, Marion E. "Agricultural Responses to Prices in Sub-Saharan African Countries." IMFStaff Papers 30 (December 1983): 703-726.

Central Bank of Nigeria. Annual Report and Statement of Accounts. Lagos: Central Bank,various years.

__. "Note on the Determination of Exchange Rate." Internal memo, October 1975.

Chenery, Hollis B. "Patterns of Indllstrial Growth." American Economic Review(September1960): 624-654.

Consortium for the Study of Nigerian Rural Development. Strategies and ReC'Jmmendationsfor Nigerian Rural Development, 1969-1985. Lagos: CSNRD, 1969.

Corden, William Max. The Theory of Protection. Oxford: Clarendon Press, 1971.

Corden, William Max and j. Peter Neary. "Booming Sector and: 'e-Industrialization in aSmall Open Economy." Economic Journal 92 (December 1982): 825·847.

Dervis, Kemalj de Melo, Jaime; and Robinson, Sherman. General Equilibrium Models forDevelopment Policy. Washington, D.C.: World Bank, 1982.

Dornbusch, RUdiger. "Tariffs and Nontraded Goods." Journal of International Economics4 (May 1974): 177-185.

Edozien, E. C. and Oyejide, T. Ademola. "Import Restrictions in Nigeria and Their Impacton Imports from japan." The Nigerian Journal of Economic and Social Studies 15Uuly 1973): 157-170.

Eicher, Carl E. "The Dynamics of Long-Term Development in Nigeria." Journal of FarmEconomics 49 (December 1967).

Eicher, Carl E. and Baker, Doyle C. ReMJarctl on Agricultural Development in Sub-SaharanAfrica-A Critical SUTvey. International Development Paper No.1. East Lansing,Mich.: Michigan State University, 1982.

Food and Agricultura~ Organization of the United Nations. Agricultural Development inNigeria, 1965-1980. Rome: FAO, 1966.

59

Garda, Jorge Garda. 77le Effects 0/Exchange Rate.,' ilnd Commercial Policy on AgricultumlIncentives in Colombia, 1953·1978. Hesearch Heport 24. Washington, D.C.: Intel"~ational rood Policy Research Institute, 1981.

Gregory, It G. "Some Implications of the Growth of the Minerai Sector." Australianjoul'flalof Agricultural Economics 20 (August 1976): 71·9/.

Harberger, Arnold C. "Dutch Disem;e: How Much Sickness, How Much Boom?" Resourcesand Energy 5 (No. I, 1983), p. I.

Helleiner, Gerald K. Peasant Agriculture, Government, and Economic Growt/I. Homewood,III.: Hichard D. Irwin, 1966.

Idachaba, Francis S., et al. The Green Revolution: A Food Production Plan jor Nigeria.Lagos: Federal Ministry of Agriculture, 1980.

International Monetary Fund. International Financial Statistics. Washington, D.C.: IMF,various years.

Johnston, Bruce F. and Mellor, John W. "The Role of Agriculture in Economic Development."American Economic Review 51 (September 1961): 566-593.

Kilby, Peter. Industrialization in an Open Economy: Nigeria 1945-1966. Cambrid6e, Eng'land: Cambridge University Press, 1969.

Krueger, Anne 0., et aI., eds. Trade and Employment in Developing Countries. Chicago:University of Chicago Press for the National Bureau of Economic Research, 1981.

Little, I. M. D.; Scitovsky, Tibor; and Scott, Maurice. Industry and Trade in DevelopingCountries. Oxford: Oxford University Press, 1970.

Nigeria, Agricultural Projects Monitoring, Evaluation, and Planning Unit. "Project Comple·tion Reports." Federal Department of Rural Development, Kaduna, 1982.

Nigeria, Federal Office of Statistics. Economic and Social Statistics Bulletin (Special Series)(January 1984).

__. National Accounts oj Nigeria. Lagos: FOS, 1978.

Norman, David W. Economic Analysis of Agricultural Production and Labor Utilizationamong tile Hausa in the North ojNigeria. African Rural Employment Paper No.4.East Lansing, Mich.: Michigan State University, 1973.

Norton, Roger D. Pricing Policy Analysesfor Nigerian Agriculture. Washington, D.C.: WorldBank, 1983.

Ogunfowora, O. "Conceptualizing Increased Resource Demand and Product Supply InducingPolicies in Peasant Agriculture." N~fJerian Journal oj Economic and Social Studies(March 1973).

Ojo, M. O. "Food Supply in Nigeria." Economic and Financial Review 15 (December 1977):12·19.

Okrume, Godwin E. Foreign Trade and the Subsistence Sector in Nigeria-The Impact ofAgriculture Exports on Domestic Food Sup;Aies in a Peasant Economy. New York:Praeger, 1973.

Oyejide, T. Adr.mola. "Exchange Rate Policy for Nigeria: Some Options and Their Conse­quences." Paper presented at the Workshop on Management of Nigeria's ForeignEXl:hange Resources, University of Ibadan, March 15, 1985.

60

=

---

"-­!L

....

_____, "Food Polley and the Choice of Trade Hegime," In Accelemting Food ProductionGrowth in Sub-Saharan A/rica. Edited by john W. Mellor, Christopher L. Delgado,and Malcolm j. Blackie. Baltimore: johns Hopkins University Press for the Interna­tional Food Policy Hesearch Institute, forthcoming.

__, Tariff Policy and Industrialization in Nigeria. Ibadan, Nigeria: Ibadan UniversityPress, 197 S.

Hobertson, james W. "An Analysi:; of Agricultural Trade and Subsidy Policies in Nigeria."World Bank Country Policy Department. Wa:;hington, D.C., August 1983 (mimeog­raphed) .

__' The Stmcture 0/ Industrial Incentives in Nigeria: 1979-80. Heport 1441-0 J.Washington, D.C.: World Bank, 1981.

Siebert, Horst, ed. 'l71e Resource Sector in an Open Economy. Berlin: Springer-Verlag, 1984.

Sjaastad, Larry A, "Commercial Policy, True Tariffs and Relative Prices." In Current Issuesin Commercial Policy and Diplomacy. Edited by john Black and Brian Hindley. NewYork: St. Martin's Press, 1980.

Sjaastad, Larry A. and Clements, K. W. "The Incidence of Protection: Theory and Measure­ment." Paper presented at the Conference on the Free Trade Movement in LatinAmerica, Haus Rissen, Hamburg, Germany, june 21·24, 1981.

Teal, f'rancis. "The Supply of Agricultural Output in Nigeria." journal of DevelopmentStudies 19 (January 1983): 191·206.

Tshibaka, Tshikala B. "Effects of Nigerian Trade Policies on the Agricultural Sector, 1955/56­1975/76." Ph.D. thesis: University of Ibadan, 1979.

__. "Effects of Nigerian Trade Policies on the Structure of Incentives to Al;ciculturein Zaire." Washington, D.C.: IFPRI, june 1985 (mimeographed).

Valdes, Alberto and Siamwalla, Ammar. "Foreign Trade Regimes, Exchange Rate Policy andthe Structure of Incentives for Agriculture: Issues and Policies." Washington, D.C.:IFPRI, 1983 (mimeographed).

Warr, Peter G. "Exchange Rate Protection in Indonesia." Bulletin ofIndonesian EconomicStudies 2(1 (August 1984): 53-89.

World Bank. Accelerated Development in Sub·Saharan Africa: An Agenda for Action.\!vashington, D.C.: World Bank, 1981.

__' "Large Scale Farming and Mechanisation." Nigerian Agricultural Sector Review.Supporting Paper 19, june 29, 1979.

__. Toward Sustained Development in Sub-Saharan Africa: Ajoint Program ofAction.Washington, D.C.: World Bank, 1984.

61

:.

IPPRI RIlSEAHCH HIlJ>OHTS (continued)

211 G/WWI1I AND /;'(11 I17Y: I'OUCII:'S ANIJ IMI'I./:'MI:NIA liON IN INOIAN A(,'IIICIII.,.IIIII:', NOvelllhl'r 11)/1 I, hyJ, S, Sanna

27 AGIIICI/(JlfllAI. I'IIIC/:' I'OW:II:'S IINOI:'II COMI'UX SOCIOI;C'ONOMI(: AN/! NAUfflAI C()NSIIIAINI:~': 1111:'(:ASI:' OF//AN(,'fA/}/:SII, Orloher IliIl I, hy Hal~llflilln AI II lied

l.f, FOO/! S/:,CUlllfY IN '/HI:' SAIIU.: VAIIIAIJU:' IMf'()frr U:VY, GilAIN II/:'SI:'IIV/:'S, ANfJ f.(JIII:'IGN /:,XCIIAN(;I:ASSISIANCf, SI'plelJll)('r \'1111, hy John Mcintire

7.5 INSIAIlIUIY IN INIJIAN AGIIIUII,TlfIIf IN nlf CONII:'XTOFlIlI; NI;'W IH:IIN()f.()GY.lllly 11)/1 I, hy ShakuntlaMehra

2'1 Tllf I:FI·LClS ()f: I:XC'IIANG/:' /lATI:S ANIJ COMMI;RCII1I. IYJUCY ON AGIIICI/I.'IVIII1I. INCI:Nl'lVfS INCOI.OMIJII1: 195J.! 1)711. Junl' I'Ill I, hy )orp,e Carda Garcia

2.\ (;OVUINM/:NT I:XI'I:NOrtVIII:S ON AWI/CIIIJIIIU:' IN 1.11 TIN I1MUI/CA. May I lill I , hy Vlclor ). 1;lIa5

22 I:SlIMAlI:S OF SO VII;/' GIlA IN IMI'OIIlS IN I QB1J115: AI.ITIINA TlVI: A."I'II()ACI/I:,~; FI'hruary 1IIIlI, hy I'admaDesai

21 ;\(;111(.'1/1.TI/IIAI.I'IIOI1:CI10N IN OI:'CD C()I/NIIIII:'S: IfS COST TO I.t:SSD/:VI:'l.O/'I:'D COI/NIIIII:'S. Decelllherl'iRO, hy Alhl'no Valdes and Joachim Zlelz

20 IMI'ACT Of flllI/GAlION ANIJ lAIIOII AVA II.AIIIUIY ON MIII.I1I'I./: CIIOI'I'ING: A Ci1SI: STUDY OFINIJII1.Novemher I l}/lO, by Dh;1I111 Nar'lin and Shyalllal Hoy

I I) A COMI'AllIIlIVf SIUDY Of/-ilO AN/! USDA DI1lA ON I'IIODUCTlON, Allfl1, AND TIIADE OF Mil/Oil H)O/),~7ill'1.l:'.~; (Jcwhl'r IliRO, hy Leonardo A, Paulino and Shen Shenl' T5enl\

IB IIII:' I:'CONOMICS OFlllf INI/:'IINA 1I(WAI. S7DCKIIOWING OF WI/I:A 7; Sl'ptemher I'IIlO, hy Daniel T. Mnrrow

17 A(;IIICIII.7VIIAI.II/:S/:AIICII I'OUCY IN NIC/:RlA, AU~~U5t 11)1l0, hy Franci5 Sulemanuldach"ha

II, A III:VII;'W Of CIIIN/:SI:' AGlIlr:tIl.TlJ'IAI. SIAlISIIC~', 11)49·79, July II)flO, by Ilruce Sto:ll'

l'j H)()lJ l'1I0/)I/CT/ON IN /III:' I'I:DI'I./:"S IIEI'UIIUC OF CIIINA, May II)BO, by Anthony M, Tan~: and IIruct' Stonl'

I <l DFV/:'f.()PI:D·COUNflIY AGllleU/.IUIIAI. 1'01.l0Eo5 AN/) IJI:'VFf.()PING·COUN7JlY SUPI'UliS: /HE CASE OFWillA J; March 19110, by TllI10lhy josllng

13 TlfE IMPACT OF l'lIIlUC FOODG/IAIN DIST/lII/Crt/ON ON I''GOIJ CONSUMl'flON ANn WI:'/.MIIE IN SilllANKA. Ikcelllbl'r 11171), by Jaml'~; 1>, (;avan and Inrlrani Sri Chandra5ekl'l'a

12 TWO ANAI.YSFS OF INDIAN FOODGIIAIN PlIODUCflON ANIJ CONSUMPTION DATA, November I'nl), hyJ. S. Sarma and Shyalllal Hoy and by 1'. S. George

I I I1I1I'1D FOOD l'I'IIODUC7JON GROW7JIIN Sfl.ECTfD IJEVE/.OPINC COUN'lRII:S: A COMI'I1I1A 7JVE ANil I. YSISOFUNLIfRI.YING TII/:N/),~; 196176, October 1'17l), by Kennelh l.. Bachman and Leonardo A. Paulino

10 INVESTME:NT AND INI'UT IIEOI/III/:'MfNTS 1·011 ACCI:'I.ERATING FOOD PIIODUCTION IN 1.0WINCOMfCOUNJllII:S IIY IQI)O, Sl'ptt'lIlber 1')7<), by I'l'lt'r l)ram, Juan Zapala, Gt'OI'I\e Alibaruho, and Shyamal Hoy

'I IIRAIIf. 'S MINIMUM 1'/lIeT POUCY I1ND 7JlE AG/lICUUUIIAI. S/:,CTOR Of NOR7JlI:'I1ST IiIIAIIL, June 197Q,by ROl\er Fox

n FOODCll/llN SUPI'I. Y. DISTIIIIII!TION. AND CONSUMI'7JON POUUES WIT/liN A DUAL I'IIICING MECIIANISM:A CAS/:, STUDY OF BANGIAlJI:SI/, May 11)7'), by Hal,orldin Ahrr:pd

7 P(}fIUC IiISlJ/II/I!TION OF fOODGRAINS IN Kflll1lk---INCOMI:' DlS7JIIIIU7JON IMI'UCA 7JONS AND EFfEe7JVfNESS, March 197'), hy r. S. George

() INTfRS/:,·C7WII1I. FACTOII MOIIII.lTY ANIJ AGllleU/JIIIIAl. CROWII/, February 11)79, by Yair Mundlak

IMI'ACT OF SUBSIDIIED IlICE ON fOOIJ CONSUMI'TlON AND NUTRITION IN KUIAlA, January 1070, hyShubh K, Kumar

4 FOOD SECURITY: AN INSUIIANCf A1'I'1I0AClI, Seplember I()7Il, by Panos Konandreas, Barbara Huddleston, andVlrahongsa Hamangkura

FOOD NEEDS OF DEVEWI'ING COUNTllII'S: I'I/O/ECf/ONS OF PIIODUCI10N ANIJ CONSUMP/ION TO19QO. December 1')77

2 IIECI:NT I1ND I'IIOSPfCrlVE DEV/:IOI'MENTS IN FOOD CONSI/MPrtON: SOMI:' I'OUCY ISSUE!>: July 1077

I MEETING fOOD NEEDS IN mE DEV/:'l.OPING WOIIID: WCA nON AND MI1GNITUDf OF mE 7ASK IN TiffNEXT DECADE, l'l'bruary 1'17(,

T. Ademola Oyejide is head of the Department of Economics at theUniversity of Ibadan. Nigeria.

~-

"

.J

.'.':,-.. '!.-

. "'.,"-

.... (

:.i' ,

, '. .

l?<,,:~

;~.ri

'L~<,t~

,,1\ .\

/;,l~,•

·.· ... r,·'·'·.1 ··,t".".:,d··:'··'

'.j:',:,' .."., " 'I',.';

)·".:i' ",'i/',; ::;-":-,,,>;,~:, ;.' ('; il<":~":':' <:~,'.., ;j,;·1r':':;'.:.:"'I·,;;;·,~·:r': r'::' ;",";(';,·.~'\'I :1";

,:'.;,'

, . ",IFPRJRBSWCH,JlBM@S, .' , .54' WfiATHERAND GRAIN YIELDS j~:THESOVIE7:UNION, SeptemberI986,:biPadma Dela,l, .,....... . '. "",53 REGIONAL COOPERATION TO IMpROVE FOOD ,'1BCURlTfIN SOUnioRN AND:EASTERNAPRICAN COUN·.,17I1e.s; July! 986, by I!lrlcb Koeillit., ."., " ..... ......, ,...•. ,. '. ,,' " '

52 fOOD IN THE THIRD WORW: PAST TRENDS AND PROJECTIONS TO 2000, lilnel986, byJ,eoOlirdo!'u Paulino, 5I DlrreRMINANTSOiAGRICULTURALPOLlCIESIN THO UNITED STATES AND THE EUROpliANCq¥MUNI1f,

November 1985, byMlchel Petit' ., ... '. ". ..' .. ' . . .SO, GOVERNMENTEXPEND,I7VRESONAGP1CULrUREANDAGRICUL7VRAL GROWniINIA77NAMERlCA, October

. 1985, by Victor 1:£lIa5 ". " .', .. ,'., ." .' .' . ' .' '.... . .49' U'lESTOCK PRODUcrsiNTHB THIRD WORLD: PAST TR$NDS AND PRO/ECTIONS TO 1900 AND 201)0, April

J98S,by J. S. Sarma and PatrlckYeung<." , , .' . '. ' '.' ....48 RURAL HOUSEHOLD USE OF SERVICES: A STUDY OFMIRYALGUDA TAWKA, INDIA, March '198Si by Slid~lr

Wanmall'47 EYOLVINGroODGAPs INTHE MIDDLE EAST/NORTH AFRICA: PRO~PEcrs AND POLICY IMPUCA770NS,

December 1984, by Nabll Khaldl46 THE EFFECTs ON INCOME DISTRIBUTIONAND NUTRITJOiv OFALTERNATIVIi RICE PRICE POLICIES IN

. T/fAlLAND,November 1984, by, Prasam Tralratvorakul '.. ..... ..' '.45 .THE EFFECTS OF THE EGYPTIAN FOOD RA770N AND SUBSIDY SrsTEM ON INCOME DISTRIBUTION AND

CONSUMP770N, JUly. 1984, by Harold Alderman and Joachim von Braun44 CONSTRA/NTSONKENYA'S FOOD AND BevERAGE EXPORTS, ~pru 1984, by Michael Schluter43. CLOSING THE CEREALS GAP WITH TRADE AND F(XJD AID, 'January 1984, by Barbara Huddleston42 THE EFFECTS OF FOOD PRICE AND SUBSIDY POlJClES ON EGYP77ANAGRICULTURE, November 1983, by

,JoaChim von .Braunand Hartwig de Hapn41 RURAL GROWTH LINKAGES: HOUSEHOW EXPENDI7VRE PATTERNS INMALAYSIA ANDNfGERIA, September

1983, by Peter B•. R. Hazell and Ailsa Rllell .40 fOOD SUBSIDIES IN EGYPT: THEIR IMPACT ON FOREIGN EXCHANGE AND TRADE, August 1983, by Granl~Sc_. ." '. . .

39 .THE WORW RICE MARKET: STRUC7VRE, CONDUCT, AND PERFORMANCE, June 1983, by Ammar Siamwaliaand Stephen Haykln . ,

38 POUCY MODELING OF A DUAL GRAIN MARKET: THE .CASE OF WHEAT IN INDIA, May 1983, by RaJ. Krishnaand Alay Chhlbber , .

.37. SERVICE PROVISION AND RURAL DEVELOPMENT IN INDIA: A STUDY OF MIRYALGUDA TALUKA, FebrUary .1983, by Sudhlr Wanmall . . ' .'

36 AGRICULTURE AND ECONOMIC GROWTH IN AN OPEN ECONOMY: THIi CASE OF ARGENTINA, December1982, by Domlngu Cavallo and Yair Mundlak . '. . .

35 POLIcY OPTIONS FOR THE GRAIN ECONOMY OF THE EUROPEAN COMMUNITY:' IMPLICATIONS FOR 'DEVELOPING COUNTRIES, November 1982, by Ulrich Koester

34EGYPTS'fOOD SUBSIDY AND RATIONING SYSTEM: A DESCRIP770N,OctoberI982,by Harold Alderman,. 'Joachlm.von Braun, and Sakr Ahmed. Sakr . • . .'. '.. .

33 AGRlCUL7VRAL. GROW11f AND INDUSTRIAL PERFORMANCE IN INDIA, October 1982, byC. Rangaralan. 32100D CONSUMPT/ONPARAME1ERS FOR BRAZIL AND THEIR APPUCA770N TO FOODPOUCY,September '.'.1982, by Cheryl Williamson Gray '. ....'.., • .•.•.•. . ,. '. ...•.. " ' ...... '.3 I SUSJ'AlNINGRAPlDCROWTH1NINDIA'SFERTILIZER CONsUMP770"': APERSPECTIVEBASEDONOOMPOSITJON'

, , . OPUSE,.AugUstI982, byGu~yant M. Desai ,, .. ',,• 30 INST,4Blujy IN/NDIAN FOODGRAlN PRODUCTION, May 1982,byPete~B.R. HaZell, 29 GOVERNMENrPoUCYAND FOoJiiMPORTS: THE CAsE OF wHEATIN EGYPT', D~mber 1981, by Grant M.

Scobie ' ,. .•.• .• ' : '-if{}

>''>i ,Li;, , ;,;;J,;i', """';'.' ':S~::;;~,;,.:-;.1. "~.""""

" ~"'; .~ .