nigeria agrcultural pricing policy - world bank€¦ · could co-ordinate trade, exchange rate,...

Report No. 4945-UNI

NigeriaAgrcultural Pricing Policy

June 15, 1985

Western Africa RegionFOR OFFICIAL USE ONLY

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Do:ment of the World Bank

This docume'nt has a restricted distribution and may be used by recipientsonyI in'the performance of their official duties. Its contents may not otherwisebe disclosed without V:r1d Bank authorization.

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CURRENCY EQUIVALENTS

Year U.S. Dollarsper Naira

1977 1.5511978 1.5751979 1.6591980 1.8301981 1.6291982 1.4851983 1.3821984 1.302

FISCAL YEAR

April 1 - March 31 until 1980April 1 December 31 1980January 1 - December 31 1981 onwards

FOR OFFICIAL USE ONLYPREFACE

This report reviews developments in the Nigerian agriculturalsector from the perspective of pricing and subsidy policies, with the aimof recommending a system of incentives that would enhance agriculturalproduction and revive agricultural exports in line with the Government'sexpressed intentions. While agricultural prices (except for exporL crops)are currently very high, there is nevertheless the need to make theincentives more systematic (for instance, between importable and exportablecrops) and more efficient (for instance, relying on tariffs rather thanquantitative restrictions); and to set up the institutional capacity thatcould co-ordinate trade, exchange rate, input and output pricing policiesthat affect the agricultural sector. Indeed, one of the principal causesof the currently high prices have been insufficient incentives in the pastthat led to low agricultural growth. The report first studies existingagricultural policies and draws conclusions as to their direct and indirectimpact on production. The policies examined relate to input subsidies andthe price-fixing activities of the various Commodity Boards, as well as totrade and tariff mechanisms. The report then seeks to make policyrecommendations designed to enhance incentives to production. These relateto: (i) a proposed trade-based incentives system that would re-alignagricultural and industrial incentives and that would change relative neteffective rates of protection to make them comparable for export andimport-substituting agricultural commodities, and to make them more uniformoverall; and (ii) institutional reforms in the administration of inputsubsidy programs, the role of the Commodity Boards and the TechnicalCommittee on Producer Prices (TCPP).

The report is organized as follows: Chapter 1 analyzes thestructure and performance of the agricultural sector. Chapter 2 examinesthe prevailing system of agricultural input subsidies; recommendations forthe reform of various input subsidy programs are made. Chapter 3 studiesthe price-fixing activities of the TCPP and the Commodity Boards. Severalchanges are suggested in order to permit these institutions to supportagricultural incentives effectively. In Chapter 4, the report focuses onNigerian trade and exchange rate policies. It recommends a more systematictrade-based incentives system, which would redress incentives between theagricultural and industrial sectors, and would result in more uniform ratesof protection between crops. It would also remove the bias against exportcrops.

The analysis on which this report is based was carried out aspart of a program of economic work associated with the preparation of astructural adjustment program. When, in July/August 1984, it became clearthat finalization of the latter was to be substantially delayed, it wasdecided nevertheless that the issues relating to agricultural pricingpolicy could usefully be brought together in a separate report, which wasthen discussed with the Government in November 1984. A final mission inMarch 1985 was required to refine parts of the analysis. The report wasprepared by Ann Duncan and Mustapha Rouis, with contributions by E.B. Riceand Farrukh Iqbal, staff of the World Bank, and Roger Norton, JamesRobertson, and Brian B. Faucett, consultants. Vandana Chandra,researcher/consultant, and Patricia Blair, economist/editor, alsocontributed to the report.

This document has a restricted distribution and may be used by recipients only in the performance of 1their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

ABBREVIATIONS AND ACRONYMS

ADA Accelerated Development Area ProgramADP Agricultural Development ProjectAPMEPU Agricultural Projects Monitoring, Evaluation, and Planning

UnitASC Agro-Service CentersAPTG Agricultural Prices and Tariffs GroupCAO Chief Agricultural OfficerCBN Central Bank of NigeriaERP Effective Rates of ProtectionFAO Food and Agriculture OrganizationFACU Federal Agricultural Co-ordinating UnitFDARD Federal Department of Agriculture and Rural DevelopmentFMGN Federal Military Government of NigeriaFMAWRRD Federal Ministry of Agriculture, Water Resources and Rural

DevelopmentFOS Federal Office of StatisticsFPDD Federal Procurement and Distribution DivisionGDP Gross Domestic ProductGMP Guaranteed Minimum PricesICB International Competitive BiddingIITA International Institute of Tropical AgricultureLBA Licensed Buying AgentNACB Nigerian Agricultural and Cooperative BankNAFCON National Fertilizer Company of Nigeria Ltd.NAFPP National Accelerated Food Production ProgramNERP Net Effective Rates of ProtectionNGRB Nigerian Grains BoardNSS National Seed ServiceOFN Operation Feed the NationQRs Quantitative RestrictionsRBRDA River Basin and Rural Development AuthorityTCPP Technical Committee on Producer PricesT & V Training and Visit SystemUSDA U.S. Department of Agriculture

rage:

NIGI -SOCIAL INDICATORS DATA SNEErsIteRI RACsu GR COUPS (W EIGTD AVEAS)

mOST (MO RETr ESTIxATE) lbRwCuCr OOMWn. InCO MHDDLE miO

196Do&!! 1 970/b zsriSSk AmuCA S. OF sAHARA N. AnIaCA a HID EAsT

A T ( 30ASQ. IN)TOTAL 923.8 923.8 923.8ACRICULTURAL 471.0 497.4 513.1

CGEF PM CAPA ClSs) 200.0 330.0 '60.0 1112.9 1149.6

(KILORCAMS OF OIL EqUIVALENT) 20.0 35.0 143.0 529.0 622.1

POOAU AMI TrOL STATITIOSri POPULATION.HIU-YRAR (THOUSANS) 51:98.0 66120 90572.0URBAN POPULATION C( Or TOTAL) 13.1 16.4 21.; 29.7 48.2

POPULATION PROJECTIONSPOPULATION iN YEAR 2000 (HILL) 169.3SAIONAY POPULATION (HILL) 617.7POPULATION qaIHETtMI 2.0

POPULATION DENSrTYPER SQ. Dl. 55.9 71.6 94.8 55.8 36.3PE S4. KM. AGRI. LAND 109.6 133.0 170.7 111.5 461.7

POPULATION AGE STRUCTURE (Z)0-14 URs 45.4 46.6 47.8 45.4 43.6

15-64 YRS 52.3 51.0 49.8 51.7 53.165 AND ABOVE 2.3 2.4 2.4 2.9 3.3

POPULATION GROWTH RATE (Z)TOTAL 2.4 2.5 2.6 LBS 2.8URBAN 4.7 4.7 4.9 5.2 4.5

CRUDE BIRTH RATE (PER THOUS) 52.0 50.7 49.5 47.0 40.4CRUDE DEATq RATE (PER THOUS) 25.3 20.8 16.2 15:2 11.5GROSS RERODUCTION RATE 3.4 3.4 3.4 3.2 2.8

FAMILY PLNNINGACCEPTORS* ANNUAL (THOUS) .. 7.6USERS ( OF HRIED WE) .. .. 6.0 .. 22.2

INNEX Of FOD PROD. PER CAPITA(1969-71-100) 100.0 102.0 92.0 91.6 97.3

PER CDPITA SUPPLY OFCALORIES (Z OF REQUIREMENTS) 83.0 84.0 91.0 98.2 '110.SPROTEINS (CRGAS PER DAY) 45.0 45.0 49.0 56.7 70.1

OF VHICH ANIMAL AND PULSE 10.0 11.0 11.0 te 17.0 17.8

CHILD (AGES 1-4) DEATH RuWTE 50.0 34.0 20.0 18.7 14.6

LIFE EXPECr. AT BaTH (YEALS) 38.7 43.7 49.6 51.7 57.5INFANr MORT. RATE (PEt T11US) 190.0 154.0 109.0 102.7 101.5

ACCESS TO SAFE WATER (IPOP)roTAL .. .. .. 35.6 59.7URIAN .. .. .. 54.1 84.5RUtAL .. .. .. 27.3 38.4

ACCESS TO EICRETA DISPOSAL(Z OF POPUATION)

TOTAL .. ..URBAN .. ..RURAL .. ..

POPULATION PER PHYSICLAN 73710.0 24670.0 12550.0 Id 11948.3 4345.1PDP. PER NURSING PERSON 4040.0 f 5070.0 3010.0 II 2248.9 1831.1POP. PER HOSPITAL BED

TOTAL 3020.0 /f 2220.0 1180.0 /d 986.9 632.9URIAN 430.0 7- 490.0 370.0 7t 368.7 545.5RURAL 25630.0 /a 18490.0 5490.0 4012.1 2513.5

ADMISSIONS PER HOSPITAL BED .. .. .. .. 26.2

AVERAGE SIZE OF HOUSEHOLDTOTALURBW .. 4.7thRURAL .. ..

AVERAGE NO. OF PERSONS/ROONTITAL .. ..URa 3.0 2.2 /hRURAL .. ..

ACESS TO ELECT. (Z OF VWEU.INGS)TOTL .. .. .. .. 46.2URBAN 81.3 42.4 /h .. .. 77.7RURAL .. .. .. .. 16.1

NIGERIA - SOCIAL INDICATORS DATA SHEETNIGERIA REFERENCE GROUPS (WIEIGHTED AVERA;;S) /-

MOST (MOST RECENT ESTIMATE) /bRECENT MIDDLE INCOME MIDDLE INCOKE

1 9 6 011!b 1 9 7n/b ESTIMATEkb AFRICA S. OF SAHAA N. AFRICA 6 MID EAST

IDUCATIONADJUSTED ENROLLMENT RATIOS

PRIMARY: TOTAL 36.0 37.0 98.0 /i 91.0 88.3KALE 46.0 47.0 90.5 102.5FEMALE Z7. 0 27.0 73.6 73.6

SECONDRY: TOTAL 4.0 4.0 16.0 /I 17.4 43.0MALE 6.0 6.0 23.7 52.3FEHALE 1.0 3.0 14.8 33.0

VOCATIONAL (S OF SECONDARY) 4.8 8.5 3.1 /i1j 5.3 10.3

PUPIL-TEaCHER RATIOPRIMARY 30.0 34.0 38.6 30.3SECONDARY 19.0 21.0 24.3 23.1

ADULT LITERACY RATE (Z) 15.4 Ie 34.0 35.6 43.5

co5INEPoPASSENGER CARSJTNOUSAND POP 0.6 0.9 1.4 /I 20.7 17.8RADIO RECIVFRS/ITHOUSAND POP 2.8 19.3 66.1 100.8 13S.8TV RECEIVERSITHOUSAND POP 0.0 1.1 5.3 18.5 46.1NEUSPAPER (-DAILY GENERAL

INTEREST") CIRCULATIONPER THOUSAND POPULATION 5.5 4.8 6.9 17.2 31.2

CINMA ANNUAL ATTENDANCE/CAPITA 0.0 /d 0.3 1.7

LAB1 FORCETOTAL LABOR FORCE (THOUS) 21788.0 25992.0 32478.0

FE MLE (PERCENT) 41.3 40.6 39.7 33.8 10.8AGRICULTURE (PERCENT) 71.0 62.0 54.0 57.1 42.4INDUSTRY (PERCENT) 10.0 14.0 19.0 17.4 27.9

PARTICIPATION RATE (PERCENT)TOTAL 42.2 39.3 35.9 36.3 26.2MALE 50.3 47.3 43.7 47.6 46.4FEMALE 34.4 31.5 28.2 25.1 5.8

ECONOMIC DEPENDENCY RATIO 1.1 1.2 1.4 1.4 1.8

INWME DISTRI10OUPERCENT OF PRIVATE INCOKERECEIVED BY

HICHEST 52 OF HOUSEHOLDSRICHEST 201 OF HOUSEHOLDSLOVEST 202 OF HOUSEHOLDSLOWEST 402 OF HOUSEHOLDS

POVEIT TARGET GROUPSESTIMATED A6SOLUTE POVERTY INCOMELEVEL (USS PER CAPITA)URBAN 696.0 525.3 274.8RURAL 341.0 249.0 177.2

ESTIMATED RELATIVE POVERTY INCOMELEVEL (US$ PER CAPITA)

URRAN 621.0 477.4 402.6RURAL 207.0 186.0 284.9

ESTIMTED POP. dELOW ABSOLUTEPOVERTY INCOME LEVEL (1)

URBANRURAL

nor AVAILABLENOT APPLICABLE

N O T E S

/a The group averages for each indicator are populatiau-weLghted arithmetic means. Coverage of countries among theindicators depends on availability of data and is not uniform.

lb Unless otherwise noted, 'Data for 1960" refer to any year between 1959 and 1961; "Data for 1970' between 1969 and1971; and data for "ot Recent Estimate" betreen 1980 an 1982.

/c 1977; Id 1979; Ie 1962; /f Including ex-North Cmeroon under British administration; /6 1976; /h 1972: /I 1979;/i Ceriin fields of stud7 previously classified under other second level education of vocational or technicaln ture are now reported under general education.

JUNE, 1984

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ECONOMIC INDICATORS

CROSS NATIONAL PRODUCT IN 1982 ANNUAL RATE OF CROVTH(S, Constant Prices)______________________________ -------------------------------------------- _____

USS KIn. /1/ s 1975-80 1981 /2/ 1962 /1/

CUP at market Prices 70,106 100.0 3.1 -7.6 -0.2Gross Domestc Investment 16,115 24.0 1.3 7.6 -1868Gross National Saving 9,070 12.9 5.2 -31.4 -24.0Current Account Balance -7,341 -10.5 - _Exports of Goods .NFS 13,590 19.0 2.0 -34.4 -19.1Imports of GoodS .NFS 19,989 28.5 15.6 -7.1 -31.9

OUTPUT. LABOR FORCE ANDPRODUCTIVITY IN 1982

Value Aeded III Labor rorce /3/ V.A. PEN Worker

US$ iln. S Kin. S Us $S

Agriculture 15,064 21.8 19.6 59.5 876 00.6Industry A Mlining 27.709 39.0 6.2 18.9 40320 199.5Services 27,847 39.2 7.0 21.3 3,978 183.7

Total/Average 71,020 100.0 32.8 100.0 2,165 100.0

GOVERNMENT FrIANCE________________

General Government Central Government

(N1 KiCn.) S of GOP

1982 /1/ 1982 /1/ 1979-81 /4/ 1982 /1/ 1982 /1/ 1979-81 /84/

Current Receipts 12 620 26.4 29.5 7.320 15.3 21.3Current Expenditure 9,612 20.1 20.1 4,378 10.2 10.8

_------ - _ ______ _____ ---- _ ------ --- _-- -____ _ _______

Current Surplus 3,008 6.3 9.4 2.442 5.1 10.5Capital Expenditure 9,517 20.0 15.O 6.270 13.1 12.9External Assistance(net) .. .. .. 264 0.6 0.6

MONET, CREDIT AND PRICES 1976 1977 1978 1979 1980 1961 1962

(Million N Outstanding End Perlod)Money and Quasi Money 5,603 7,813 7,521 9,8049 14,390 15,239 16,694Dank Credit to Public Sector(net) 551 2.309 3,1043 3,313 3,539 6.299 10,328lank Credit to Private Sector 2,362 3,459 4,485 5,126 6,744 8,917 10,567

(Percentages or Index Numbers)Money A Quasi Money as s or GDP 21.6 20.7 22.2 24.3 30.9 32.3 34.9General Price Index(1975s100) 123.9 143.0 166.7 186.3 204.9 247.5 266.5Annual Percentage Changes ir:

General Price Index 21.7 15.4 16.6 11.8 10.0 20.8 T.7Bank Credit to Public Sector .. 319.1 36.1 5.4 6.8 76.0 64.0lank Credit to Private Sector 30.8 45.2 29.7 14.3 31.6 32.2 11.5

Note: All conversions to dollars In this table are at the average exchange rate prevailing during periodcovered.

/1/ Revised estimates. /2/ Orficial estimates. /14 Provisional./3/ The data Is derived froe planning documents and refers to t"h number of 'gainfully employed'... Not Available.April 18, 1984.

TRADE PAYMENTS AND CAPITAL FLOWS

ULANCE OF PAINENTS HliCHAND1Si EXPORTS (AVERAGE 1981-1903) /'l

198t /1/ 1982 /2/ 1983 /3/ US$ Kin n

(Millions US $1Imports of Goods f.o.b. 17,713 12,930 10,730 Crude OIl 13,421 96.7of wihch0Ptroleum 17162 12,7S1 10,350 Cocoa Products 225 1.

Saporta of Goods fro.b. 18,390 11,138 12,254 Palo Products es 0.6Servlce A Income -41,803 -3,060 _3,203 Tin 25 0.2let Transfer* -567 -373 -260 Othor Comoditlos 127 0.9

Current account lmiance -6,042 -7,3411 -4,992 Total 13,;82 '00.0

IXTEENAL DIET, DEC ENSIE 31. 1983 /5/*irect Foreign Investment 16S 358 365 -_________________________________

let Orricial ILT Borrowing oil 758 960 US3 lln.of which: Lmortization -583 -4T7 1200 _______

Public Debt. ncl. Undlaburbed 1t,504Other Capital (Shert-Torm) n09 496 -643 Non-Guarant.ed Privote Debt

Lt Errors A Oulshlons -1543 -689 0 Total Outatanding & Diaburmed 11756

Overall Soloneo -6200 -6418 -4290

Financing 6200 6418 4290Fnnn 6200 -__-_ --- _ - - ---- DT SECVICE RATIo ror 1983 /6/lloearYs Nlovsemnt&(Incr.-) 6,Z00 2,367 518 ------------------------------Arrears 0 4,0S1 3,770 1*oserve Levels 0,261 1,129 1,092 ---leserv. as Month of imports 0.16 0.07 0.07 Public Debt, incl. Guaranteed 17.9

Non-Guaranteed Private DebtImports 18,390 16,838 12,2S5et which: Food 3,154 2,786 1,175 Total Outstanding A Disbursed 17.9

Consumer Goods 4,612 4,141 3,259Intermediate Goods 4,682 4,342 3,137Capital Goods 5,942 5,569 3,963 1IED/IDA LENDING (Feb, 29;19U?) (Millions 8)

RATE OF EICHANGE__ _ ____ RlID IDA /7/

1978: 1.00 US$1.5719t9: 11.00 * US$1.66 Outstanding A Disbursed 848.0 36.71930: N1100 * US$S1.3 Undlaburasd 1,091.4 -1991: 31.00 t 3US$1.631962: N1.00 US$1.49 Outstanding Lnl. Undisbursed 1,939. 46.71933: 101.00 * US$1.39

11/ Provisional. /2/ Official *oeL"stimat/3/ Starr stimates./4/ Official esatlatea ror 1981 and 1982./5/ Encluding *5.9 billion short-term arroors./61 Ratio of MLT debt serviee to exports of goods and non-factor services.17/ As of February 1984.

hot Available

Aprll 18, 1984

NIGERIA

Agricultural Pricing Policy

Table of Contents

Page

Summary and Recommendations................................. i-xii

Chapter

1. OVERALL REVIEW OF THE AGRICULTURAL SECTOR .................. 1

Economic Setting . . . 1Agricultural Performance ......................... 2

- Cash Crops ... 3- Food Staples ... 3- Agricultural Imports . . . 6- Agricultural Constraints ....................... . 6

Strategy and Policy Framework . . . 7- Objectives ......... . . 7- Strategies ... 8- Agricultural Investment . . . 8- The Need for Incentives . . . 8

II. AGRICULTURAL INPUTS: INCENTIVES AND DISINCENTIVES..... 11

Agricultural Input Subsidies ........................... 11Discussion of Particular Input subsidies ................ 12

- Fertilizer ... 13-Agricultural Mechanization ...................... 15- Pesticides ... 19- Improved Seeds ... 20

Agricutural Credit Subsidies . . . 20Labor Cost of Production . . . 21

- Policy Implications . . . 22Conclusions and Recommendations . . . 22

III. OUTPUT PRICES: INCENTIVES AND DISINCENTIVES ........... 25

TCPP and the Producer Pricing Mechanism ................ 25Agricultural Output Subsidies via the Producer PriceSystem .................................................. 28

- Subsidies Per Ton ............................... 28- Levels of Protection ............................ 29- Trading Deficits . ............... . .31

Producer Prices as Production Incentives ............... 32Conclusions and Recommendations ........................ 33

- The Price Mechanism and Trade Policy ............ 33- The Role of the TCPP ........................... . 34- Commodity Boards ................................ 35

IV. TRADE AND EXCHANGE RATE POLICIES: INCENTIVES,DISINCENTIVES AND PROPOSALS FOR REFORM ................. 36

Past and Present Trade and Exchange Rate Policiesand their Effects .. . 36

Proposals for Reform .. 38Impact of Reform Proposals .. 42

- Fiscal Impact .. 42- Impact on Prices .. 42

Conclusions and Recomm endation ......................... 43

ANNEXES 47

I: Historical Levels of Production in Nigerian Agriculture 48

II: Methodological Note on the Analysis of Effective Rate 78of Protection

III: Statistical Appendix 86

IV: The Nigerian Agricultural Sector Model 112

V: Trade and Exchange Rates: Incentives, Disincentives andProposals for Reform 139

TABLES IN TEXT

Table No. Page

1.1 Production Estimates for Root Crops and Grains,19792........................ 4

2.1 Agricultural Input Subsidy Estimates .............. 13

2.2 Ratio of Domestic to International Prices for1979-82 .... 22

3.1 Takeover Allowances, 1982/83 .................. .... 27

3.2 Subsidy and Protection, Actual or Implied asProvided by Commodity Board Prices for 1982/83 .... 29

3.3 Ratio of Producer Price to Port Parity Price ...... 30

3.4 Commodity Board Trading Deficits .................. 31

3.5 Average Annual Growth Rates of Farmgate andMarket Prices, 1977-81.. ... 33

NIGERIA

AGRICULTURAL PRICING POLICY

SUMMARY AND RECOMMENDATIONS

i. From the early 1970s to the early 1980s the "oil syndrome"depressed agriculture and industry. This occurred through the effect ofthe appreciating real exchange rate of the Naira on incentives for thesesectors, and through higher labor costs. While the price situation hasshifted dramaticplly in favor of domestic agriculture in the recent past(since the foreign exchange crisis has caused a sharp reduction inagricultural imports), it is important to examine what happened in the1970s and the first part of the 1980s in order to draw lessons foragricultural policy ll in the future. During the period 1973-1983,expenditures of oil revenues, particularly on construction, bid workersaway from agriculture and raised the wages of those who remained. At thesame time, the oil export earnings financed big increases in food importsthat depressed the prices received by farmers. This was due primarily tothe cheapening of food imports resulting from the appreciation of the real(inflation-corrected) exchange rate of the Naira. The Naira had increasedin value partly because the oil earnings had increased and partly becausethe Goverment did not allow the Naira to depreciate to reflect Nigeria'srelatively high inflation (particularly in periods of low oil earnings).Overall, the impact on import prices was substantial: the exchange rateappreciated by 80 percent in real terms between 1973 and 1980, and by afurther 34 percent from 1980 to 1984. So, from the farmer's point of view,labor costs were going up rapidly and the gap between the increasing realcost of production and the decreasing real cost of competing imports wasgoing up even faster.

ii. If Nigeria could count on huge oil earnings in perpetuity, itwould not need to worry much about the decline ln agricultural growth aslabor (and capital) moved out of agriculture and imports increasinglyreplaced domestic production. However, this clearly has not been the caseeven for the short to medium term, let alone for the longer term, asNigeria faces a decline in oil export revenues, combined with a rapidlyincreasing population. Similarly, the problem would be much less seriousif Nigeria could turn agricultural capacity off and on at will inaccordance with the sudden shifts in international oil markets. That toois clearly not the case. In Nigeria, as in other countries, increasingagricultural psoduction is a long-term process of Institutionaldevelopment, research, experience of farmers with new technologies, etc.;it must be nurtured and developed, even during periods when oil earnings

1/ This report covers the crop sector of agriculture, which accounts forabout 70% of value added in agriculture (in 1982). Policies relatingto livestock, forestry and fishing, 'while also important, are somewhatdifferent and outside the scope of this report.

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provide the potential to finance huge agricultural imports. This kind ofsteady development of the agricultural sector requires a reasonable degreeof stability in farmers' incentives. Small cultivators usually cannotafford to take big financial risks. If there is a substantial risk thatthey will make losses on their production (taking account not only of cashoutlays but of what they could have earned in off-farm employment), theywill tend to produce much less, other than for their own consumption. Inpractice, though, food import policy in the 1970s subjected smallcultivators to substantial financial risks. Erratic swings in importpolicy allowed cheap imports to flood the market from time to time when oilearnings were high. This was to the short-term benefit of urban cousumers;but because it hurt future agricultural production it has turned out in thelonger run to hurt not only farmers but consumers as well.

iii. As mentioned, the oil boom caused a demand-led rise in realwages, especially through the rapidly increasing demand for labor-intensiveservices in the construction and service sectors. Communications improved,and rural labor because increasingly closely linked to developments in therest of the economy. Migration of agricultural workers to towns and citiesthroughout Nigeria took place on a large scale. The resultant upwardpressure on wages of those who rmained in agriculture hit the agriculturalsector hard. Farmers not only had to pay higher wages for hired labor, butthey had to hire -more workers to substitute for family members who hadfound (or gone off to seek) non-farm employment. At the same time outputprices were depressed by the cheap imports, so that farming activities werecaught in a tightening squeeze. And the suddenness of this squeeze meantthat there was no time for technology and institutional support to "catchup" and produce off-setting increases in farm productivity.

iv. As a result of these problems, compounded by insufficientproductire investment in agriculture and by disappointing progress inresearch on rain-fed agriculture (not just in Nigeria but in Sub-SaharanAfrica in general), it seems that until very recently agriculturalproduction has stagnated, or at best kept pace with population growth. Theimport bill has risen substantially; and agricultural exports havedeclined to negligible values. The situation today has, of course, changeddramatically. As the balance of payments crisis has worsened, imports thatcompete with domestic production have gone down, and so domestic prices ofthese crops have gone up, in the case of some staples, dramatically. Withthe further appreciation in the real exchange rate, producers of exportcrops, though, are recetving decreasing shares of the real world marketvalue of their crops, even after allowance for subsidies. However, sincemost production is for domestic markets, on balance one can say thatagriculture is now benefitting from a period of "natural protection" 1/that should help to stimulate production. They key questions for

1/ This "natural protection" created by the extreme shortage of foreignexchange to finance imports is differentiated from the protectionarising from a deliberate tariff policy.

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agricultural pricing policy are: what can be done to take advantage ofthis period of natural protection to put in place an improved system ofagricultural incentives that will be useful even after the oil marketrebounds; what can be done in the near term about export incentives; andwhat can be done to prices to prevent misallocation of current agriculturalimports and to get for the Government a fair share of the large profits nowaccruing to those who get access to imports at the official, overvalued,price of the Naira?

v. However, adequate incentives are a necessary, but by no meanssufficient, condition for raising production and productivity. Incentivesmay be more relevant in the short run, in order to make use of existinginvestments, but new investment and complementary steps are needed to raisethe production potential of the economy (some private sector investment,would, of course, be induced by adequate incentives). On the investmentside, inter alia, more funds for agricultural research are needed todevelop new technologies for raising output and/or lowering costs per unitof land and labor; extension services to disseminate the results of thisresearch need to be improved; and inputs need to be made available tofarmers on a wider scale and in a more timely fashion, etc. These issuesare all covered in a complementary World Bank report. I/ Thus, while thefocus of this report is on incentives, that is by no means intended toimply that once the prices are right, the problems of the sector will besolved. It is, rather, intended to stress that however much is invested inthe sector (whether by government or farmers), those investments will besubstantially wasted if adequate incentives are not in place to encouragefarmers to make use of them.

vi. The issue of providing adequate incentives to agriculture in anoil economy is very complex one, at the heart of which lies the problem ofcoping with the Dutch disease 2/; this is compounded by the fact that inthe medium-term, Nigeria's exportable oil surpluses are likely to startdeclining. At that point, the economy will have to rely much more on thenon-oil tradeables sector (agriculture and industry) than it does now.Furthermore, it is not feasible to let the agricultural sector declinedrastically in the short-term, on the assumption that it can be built upagain very rapidly: agricultural production involves a long-term process of

1/ Nigeria - Agricultural Sector Memorandum Report No. 4723-UNI, datedFebruary 25, 1985.

2/ The issue of exchange rate policy in an oil economy and the related'Dutch disease' problem is a complex one, and gives rise to debates onthe appropriate correspondence between the exchange rate and the oilrent cycle, etc. See G. Nankani, "Development Problems of MineralExporting Countries", Bank Staff Working Paper No. 354; A. Gelb"Capital-Importing Oil-Exporters", Bank Staff Working Paper No. 475;S. van Wijnbergen, "The Dutch Disease: A Disease After All?" EconomicJournal, Vol. 94; and W. M. Corden "Booming sector and Dutch DiseaseEconomics: A survey", mimeo, 1982.

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institutional development, research, and experience of farmers with newtechnologies, etc., which must be nurtured and developed. Thus,agricultural policy should be formulated within this medium-term framework.

vii. The most important instrument of pricing policy in Nigeria is theexchange rate, and since the current liquidity crisis is probably a closeapproximation of what the balance-of-payments position will be like oncethe exportable oil surpluses start declining, an adequate devaluation toget rid of the current over-valuation of the naira would go a long way toproducing the right incentives for the medium term. In addition to that,there are three complementary policy areas on which the Government shouldfocus: import quantities; a stabilization fund; and the method used forappraising long gestation projects. In order to provide adequateincentives to agriculture, it is important to ensure that output prices arenot depressed through "cheap" imports flooding the market. These importscould be "cheap" in relation to domestic agricultural products eitherbecause oil revenues are booming (and the exchange rate appreciates) orbecause the exchange rate is overvalued. In the former case, it issuggested that the Government take a medium-term view of the structure ofthe economy and prevent a flood of cheap imports entering the economy,preferably through the use of a stabilization fund, 1/ or thrr, gh tariffs.The use of a stabilization fund would even out the fluctuations in oilrevenues, and thus help to prevent the periodic undermining of incentivesin the non-oil tradeable sectors, that was caused by the "Dutch-disease" inNigeria in the 1970's. Tariffs on imported agricultural products could besupplemented by the use of a "shadow medium-term exchange rate" forappraising long gestation projects, such as those in the tree-crop orirrigation sub-sectors, which are projected to come on stream only afteroil export revenues are due to start declining. This rate would probablyapproximate the "equilibrium rate" appropriate to the current liquiditycrisis.

viii. However, in practice, the problems of managing the Dutchdisease in Nigeria are unlikely to re-emerge for at least the rest of thisdecade: oil revenues are not likely to pick up again significantly, andeven if they do, a substantial proportion are likely to be allocated toservicing the country's debt. The real problem facing Nigeria now is thatthe exchange rate is seriously overvalued and is thus underminingincentives for the tradeables sector. While it is correct that theinability to afford imports has restored the incentives to produce importsubstitutes, nevertheless the following problems still remain: exports arediscriminated against, since export subsidies commensurate with thescarcity premia on imports have not been provided; private traders, rather

1/ When oil revenues are unusually high, part of these could be "saved"through the fund, to be used when oil revenues are unusually low.Although it is difficult to distinguish exactly ex ante betweenfluctuations and trends, even a rough evening out of the revenue cyclewould be beneficial.

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than the Government, are collecting the economic "rents" from the scarcitypremia; and relative import quantities are set somewhat arbitrarily, andare not necessarily related to efficient resource allocation.

ix. The simplest, most efficient and effective method ofensuring consistent incentives across the board for the tradeables sectors,then, would be an adequate devaluation. This would ensure that the realcost to Nigeria of importing goods is paid by the importer; that therelative quantity of different goods imported (both agricultural andnon-agricultural) are determined more by their value at internationalprices than by administrative decisions; that the windfall profits ofimporters are cut (and shifted largely to the Government) 1/; and thatthere is as much incentive to export as there is to produce importsubstitutes.

x. However, to the extent that it is not feasible to moveimmediately to the appropriate exchange rate, a fairly substantial initialdevaluation could be buttressed in the transitional period by other steps,primarily tariffs. If, for example, a devaluation to parity with thedollar had been reached in 1984, then our analysis indicates that it wouldneed to have been supported by tariffs on imports (and equivalent exportsubsidies 2/) in the range of 40-60 percent. If instead, devaluation toparity with the dollar is not reached until, say, June 1985, then it wouldneed to be supported by tariffs (and equivalent export subsidies) in therange of 100-130 percent. These tariffs and export subsidies would, ofcourse, need to be adjusted whenever a significant change took place in thereal (inflation-corrected) effective exchange rate. In addition, theGovernment should ensure that its own import program or licenses it grantsto the private sector should be consistent with its agricultural pricingobjectives. It should be stressed that the recommendations made in thisreport for restoring incentives to agriculture do not involve advocatingunusual protection for this sector, but rather form part of an overallpackage of measures to encourage structural changes in the economy, whichapply equally well to industry and agriculture. Indeed, this package was

1/ The final consumers are already paying high market-determined prices,leading to substantial "rents" for those lucky enough to have accessto foreign exchange at the official exchange rate. Thus a devaluationwould be unlikely to cause a significant increase in the finalconsumer price of imports; rather, there would be a removal of theecnomic rents now accruing to importers, in favor of higher prices forexporters (including the Government, as exporter of oil).

2/ The export subsidy rate should be equivalent to the effectiveprotection rate (i.e. nominal protection adjustud for protection oninputs) for imports.

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developed on the basis of analyses done separately for the industrial andagricultural sectors, and for the economy as a whole 1/; all producedconclusions on macro-level pricing issues which are highlycomplementary.

xi. In addition to addressing the issue of the sufficiency of outputprice incentives to the agricultural sector, this report examines theefficiency and affordability of another aspect of the incentives system,the input subsidies. Input subsidies increased in percentage terms whenthe volume of inputs (and thus the total value of the subsidy) was fairlysmall and oil revenues were high. Now the value of the subsidies is large,and oil revenues have dropped, so that the Government has to be especiallycareful that a naira spent on subsidies has at least as much economic valueas a naira spent elsewhere in the economy. The report argues that inputsubsidies can be justified on economic grounds only in two cases: where(and to the extent that) they involve greater benefits to the sector (oreconomy) as a whole than to individual farmers (e.g. some pesticides); andin cases where farmers would use inadequate amounts of a new input (from aneconomic point of view) because they do not yet adequately appreciate howto use the more profitable technique (e.g. to encourage the use of a newfertilizer blend during a brief introductory period). Needless to say,subsidies for support services to agriculture which are not easily providedby the private sector (e.g. research and extension) or for some types ofinfrastructure (e.g. roads and surface irrigation) generally fall into thefirst case; and since the justification for this group of subsidies is onthe whole more clear-cut, they are not discussed in this report. Althoughsome input subsidies would be reduced, it is expected that because of thesubstantially higher output prices already in place, the net effect on thesector would be positive, compared to the incentive structure prevailinguntil the current import crisis.

xii. As a means of better co-ordinating these incentive policies, andmaking them more consistent with one another, as well as over time, it isrecommended that an Agricultural Prices and Tariffs Group (APTG) be set up.It would have a wider terms of reference, and greater staff resources thanthe existing Technical Committee on Producer Prices (TCPP). The APTG wouldbe charged with recommending tariffs for import crops and equivalent

1/ The Industrial Incentives System: A review and analysis of someapproaches to its adjustment, Green Cover, Report No. 4272-UNI datedJanuary, 1983; Structural Adjustment Loan, Green Cover June 5, 1984; andDetailed Proposals for a First-stage Reclassificaiton of the NigerianCustoms and Excise Tariffs and Selected Liberization of Trade, Reportof an Ad Hoc FMGN Team, December 28, 1983. While it may appear thatthe tariff rates recommended in this report are higher than in thequoted reports, this difference only reflects required adjustmentsbecause of the appreciation in the real exchange rate that has takenplace since those calculations were made.

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subsidies for export crops; establishing import limits while importlicensing lasts; setting subsidy levels for inputs; and monitoring pricesand production carefully. It would establish a program for phasing out theimport licences and the tariffs, which would be implemented as the exchangerate is devalued.

Recommendations

xiii. The main recommendations to emerge from this report aresummarized below.

A. Trade and Exchange Rate Policy

(i) in general the two major sectors producing "tradeable"goods--agriculture and industry-should receive roughly thesame degree of effective protection (i.e. nominal protectionadjusted for protection on inputs); and that the range ofprotection be gradually narrowed so that efficiency andgrowth can be maximized. This adequate and consistenteffective protection for the "tradeables" sectors should beprovided, preferably through an adequate devaluation, or ifthat is not feasible initially, then through somecombination of devaluation, and tariffs-cum-export-subsidies;

(ii) if the latter package is adopted, the tariff levels requiredwould range from 100-130 percent 1/ in the case ofdevaluation to parity with the dollar by June 1985 2/;export subsidies should be provided at a rate equivalent tothe effective protection rate on imports; and the tariffsand subsidies would need to be adjusted periodically tocompensate for any significant changes in the real(inflation-corrected) effective exchange rate;

(iii) a "shadow medium-term exchange rate" should be used forappraising long gestation projects, such as those in thetree-crop or irrigation sub-sectors, to take account of thelikely depreciation in the exchange rate that will occur inthe long-run as exportable oil surpluses start declining;

1/ If the devaluation to parity with the dollar had been reached insteadin mid-1984, our analysis indicates that the equivalent tariff rateswould have fallen in the range 40-60 percent. The difference in therates is due to the difference in inflation between Nigeria and hertrading partners during the interim period.

2/ While it may appear that the tariff rates recommended here are higherthan those recommended for the industrial sector, this difference onlyreflects required adjustments because of the appreciation in the realexchange rate that has taken place since those calculations were made.

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(iv) effective protection should rapidly be made as uniform aspossible across crops, so that farmers can concentrate theirefforts where growth possibilities are highest; temporaryexceptions can be justified only in exceptional cases whereit can be demonstrated that some extra protection is neededon a temporary basis to encourage farmers to adopt a new andmore profitable crop which has a high growth potential;

(v) so long as the Government itself is a major importer ofagricultural products, or continues to require licensing ofthese imports by the private sector, account should be takenin import allocations to ensure that amounts imported areconsistent with agricultural pricing policy. This requiressound analysis and strong commitment to avoid letting themarket be flooded with agricultural imports when exportearnings are high.

(vi) government agencies should not receive preferentialtreatment in importing, since extra or cheaper imports wouldundermine the other policies;

Cvii) policies should remain flexible and should encourageadjustment to trends in international markets - with theproviso, as noted above, that the market should not beallowed to drop out from under domestic producers inresponse to temporary improvements in Nigeria's foreignexchange availabilities;

Cviii) a mechanism for phasing out the import licences and tariffsshould be instituted, which would be implemented as theexchange rate is devalued; however, both instruments couldstill be used under exceptional circumstances, to even outgreat fluctuations in oil revenues.

xiv. Although the boost from tariffs would have its principal impacton traded crops, there would be some spillover effect onto the productionof non-traded crops through demand substitution so that the entireagricultural sector would be positively affected. The improved incentivesare also likely to have a dynamic effect on the productivity of the sector,by encouraging investment.

xv. It is expected that these proposals will help to provide adequate andconsistent incentives to farmers and to achieve the maximum feasibleagricultural growth. At first glance it may appear r,..hat this will be atthe cost of consumers, but the current price situation indicates clearlythat this is not so. Keeping agricultural prices low may help the consumerin the very short term, but because it inhibits growth in agriculturalproduction it leads to very high prices in the medium term. These veryhigh prices pose major problems for all low and moderate income consumersand risk widespread malnutrition, particularly of infants and smallchildren, among the low income group.

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B. Institutions

xvi. The current price-fixing system has four main flaws. The firstis that there is inadequate coordination among policies on trade, tariffs,producer prices, and input subsidies. Second, the data on production andprices are so weak and spotty as to make any sound analysis extremelydifficult. Third, pricing policies have been so erratic that confide.ce inconsistent policies has been seriously eroded. And finally, there hasbeen, until recently, considerable pressure to keep prices low for thebenefit of consumers and domestic processors, against the recommendationsof individual Commodity Boards. The recommendations therefore are asfollows:

xvii. (i) An Agricultural Prices and Tariffs Group (APTG) would be setup and adequately staffed to implement the proposedpolicies, building upon the existing TCPP. It wouldco-ordinate trade, exchange rate, input and output pricingpolicies. It would also monitor prices, incentives andproduction carefully, and make appropriate adjustments inpolicy, to ensure that incentives to agriculture are notallowed to fall dramatically again. It is important for theAPTG to keep in view the incentives that are appropriate tothe structure of the economy in the medium-term.

(ii) Emphasis should be given to linking Producer Prices withworld prices, and not just producer costs, although someregard to the latter cannot be avoided, especially duringthe transitional phase. This does not mean equatingProducer Prices with world prices at an over-valued exchangerate (such as prevails now), but rather at either anappropriate exchange rate, or at a less satisfactoryexchange rate supplemented by import tariffs and exportsubsidies. One of the main purposes of this would be toachieve similar relative prices between crops as prevail inthe world market;

(ii1) The APTG should work with those setting industrial trade andtariff policy, in order to ensure inter-sectoralconsistency;

(iv) Tariffs, import allocations, as well as all relevantProducer Prices should be announced well in advance of theplanting season, since incentives are derived fromexpectations of what p-ices will be;

(v) The response of the sector to these policies should bemonitored, as part of the process of building up theeffectiveness of the unit;

(vi) While all pricing policies should be reviewed annually,efforts should be made to discourage great variations from

year to year in order to provide continuity and assurance ofincentives to producers.

C. Commodity Boards

xviii. (i) During the transitional phase while import tariffs andexport subsidies remain,the tree-crop marketing boards (forcocoa, rubber, and palm products) should continue to be usedas instruments for export subsidy, to be financed out oftariff revenues.

(ii) Specific provision should be made in the Federal budget forthe deficits that will be incurred by the Commodity Boardsas a result of the export subsidies, with an offsettingtransfer to the Central Bank to cover the Boards' losses.

(iii) A thorough study of the marketing boards should be carriedout, with particular reference to the Grains and GroundnutBoards on the one hand, and to the Cotton Board on theother. The latter needs a special review, looking inparticular at the ginning arrangements. It is not clearthat these boards serve their intended role effectively, butit is clear they they have not provided remunerativeproducer incentives.

D. Input Subsidies

xix. While the Government has made an attempt to compensate for the adversemovements in agriculture's terms of trade by introducing or raising inputsubsidies, in many cases these have often been at too high a cost, eitherbecause they have not been economically justified, or because they did notreach the intended beneficiaries. As argued above, it would be preferableto rely on tari'f and trade policy to influence the terms of trade and tominimise the use of input subsidies. If the recommendations on trade andtariff policy made above are followed, then the economic subsidy onimported inputs would be substantially removed. The followingrecommendations on specific subsidies refer to financial subsidies:

xx. (i) Fertilizers: The financial subsidy on fertilizer should bephased out. In the case where fertilizer use is clearlyeconomically justified (maize), the farmers do not appear toneed encouragement to use it. On other crops, where theeconomic benefits from 'ts use do not clearly outweigh theeconomic costs, there is no economic justification for asubsidy. S_nce the exchange rate is seriously overvalued, asubstantial economic subsidy would remain even after thefinancial subsidy is removed. Thus, while the economicsubsidy remains large, the phasing out of the financialsubsidy should be carried out as rapidly as possible.However, this should not be done all at once, so thatfarmers have time to adjust to the new relative prices. Atthe same time, emphasis should be given to developing new,

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more responsive varieties and more appropriate fertilizermixes. Finally, a study should be undertaken to assess theeconomic benefits of fertilizer use for different crops,fertilizer mixes, and under different agroclimatic zones.

(ii) Agricultural Mechanization: Subsidies to large-scalemechanization of bush-clearing and land-preparation shouldbe removed. These subsidies currently apply to the sale andrental of agricultural machinery, to the provision ofbush-clearing services, and to the duty-free status ofagricultural machinery. This argument is based on theabsence of evidence that the economic benefits oflarge-scale mechanization outweigh the economic costs.Mounting evidence of the negative impact of large-scalemechanization on the soil (through erosion, compaction, andlower nutrient content) is an important factor on the costside. Once the agricultural sector becomes more profitable,private agents will invest in these technologies of theirown accord, if they are profitable. Efforts should insteadbe directed to identifying technologies to raise laborproductivity, that are not excessively costly, and that donot have negative sitde-effects, particularly on the soil.Support (through research, credit and support services)could then be provided on a temporary basis to encouragefarmers to adopt the new technology.

(iii) Pesticides: Subsidies are not needed on farm-specificinsecticides (such as seed-dressings), which are alreadywidely adopted at unsubsidised prices. They are justifiedwhere farmers are still learning to use them (e.g.herbicides in mixed cropping), or where area-wide epidemicsor infestations (such as tstetse fly infestation) areinvolved. In this latter case, the social benefits exceed afarmer's direct benefits, and thus, individual farmers arenot in a position to deal with such problems through privatepest control arrangements.

(iv) Improved Seeds: Where farmers are still learning to use animproved seed, and are not adopting it fast enough becauseof their excessive risk aversion (from society's point ofview), then a temporary subsidy is warranted.

xxi. Credit: Agricultural credit subsidies are quite substantial butappear to be inefficient and inequitable. The lending rate should beraised to cover administrative and procurement costs and to allow for aprofit margin so that the financial institutions involved can becomefinancially viable. This means in principle that the lending rate shouldalso cover defaults, which represent the major cost item. However, wheredefaults are high what is needed is institutional changes to bring themdown, rather than extremely high (real) interest rates. Still, interestrates should also be positive when corrected for inflation. Specific

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recommendations on interest rates and other issues would need to await theoutcome of the National Agricultural Credit Study, which has beeninitiated. it is hoped that the study will find innovative techniques fordealing with the problem of most small farmers' lack of collateral, whichhas its origin in the underdevelopment of the land market.

xxii. Labor, the key input to agricultural production, is notsubsidised. The extent to which real rural wages fall--in response to afall in real urban wages due to the oil glut and associated austeritymeasures--will be an important factor in the profitability of the sector.The process has clearly started already. The Government can help bylimiting increases in the urban minimum wage to the growth in productivityand by promoting technological research that will increase the productivityof rural labor, without displacing it. Indeed, now that real wages arefalling and return migration seems to be taking place, the problem is inpart how to absorb this extra labor in rural areas in economicallyefficient ways.

xxiii. Taken together, and combined with increased investment andcomplementary research, extension and other supporting services, thesemeasures would help the agricultural sector to become a principal source ofNigerian economic prosperity once again.

Chapter 1

OVERALL REVIEW OF THE AGRICULTURAL SECTOR

Economic Setting

1.01 During the 1970s, particularly after the quadrupling of oil prices in1973-74, the Nigerian economy grew at around 4 percent a year. The rapidincrease in Government revenues made possible by rising oil earnings wastranslated into significant development gains in many parts of the economy,especially in infrastructure and social services. However, developments werenot as positive in some other areas, notably agriculture, which sufferedadverse movements in its internal and external terms of trade between 1976 and1982. It seems that production has stagnated or at best kept pace withpopulation growth, the import bill has risen, and agricultural exports havefallen.

1.02 Since the early 1970s the 'oil syndrome- has depressed agricultureand industry. This has occurred through the effect of the appreciating realexchange rate of the naira on the incentive regime for these sectors, andthrough higher labor costs. While the price situation has shifteddramatically in favor of domestic agriculture in the recent past, since theforeign exchange crisis has caused a sharp reduction in agricultural imports,it is important to examine what happened in the 19709 and the first part ofthe 1980s in order to draw lessons for agricultural policy in the future.During the period 1973-1981, the oil boom caused a demand-led rise in realwages, especially through the rapidly increasing demand for labor-intensiveservices in the construction and service sectors. Couanications improved,and rural labor could no longer be isolated from pressures in the rest of theeconomy. Migration of agricultural workers to towns and cities throughoutNigeria took place on a large scale. The resultant upward pressure on wagesof those remaining in agriculture hit farmers very hard. Farmers not only hadto pay higher wages for hired labor, but they had to hire more workers tosubstitute for family members who had found (or gone off to seek) non-farmemployment. Thus, the farmers' cash outlays for labor increased considerablyfaster than the wage rate, and they were caught in a tightening price-costsqueeze. And the suddenness of this squeeze meant that there was no time forfor technology and institutional support to "catch up' and produce off-settingincreases in farm productivity.

1.03 At the same time, the oil export earnings financed big increases infood imports that depressed prices received by farmers. This was dueprimarily to the cheapening of food imports resulting from the appreciation ofthe real (inflation-corrected) exchange rate of the Naira. The Naira had inturn increased in value partly because the oil earnings had increased andpartly because the Government did not allow the Naira to depreciate to reflectNigeria's relatively high inflation (particularly in periods of low oilearnings). Overall, the impact on import prices was substantial: the exchangerate appreciated by 80 percent in real terms between 1973 and 1980. So, from

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the farmer's point of view, labor costs were going rapidly up and the gapbetween the increasing real cost of production and the decreasing real cost ofcompeting imports was going up even faster. In practice, though, food importpolicy in the 1970s subjected small cultivators to substantial financialrisks. Erratic swings in import policy allowed cheap imports to flood themarket from time to time when oil earnings were high. This was to the short-term benefit of urban consumers; but because it hurt future agriculturalproduction it has turned out in the longer run to hurt not only farmers butconsumers as well.

1.04 As a result of these problems, compounded by insufficient productiveinvestment in agriculture and by disappointing progress on agriculturalresearch (not just in Nigeria but in Sub-Saharan Africa in general), it seemsthat agricultural production has stagnated, or at best kept pace withpopulation growth. The import bill has risen substantially; and agriculturalexports have declined to negligible values. The situation today has, ofcourse, changed dramatically. Nigeria is now in the midst of a financialcrisis as a result of the sudden slump in oil markets beginning in mid-1981.The Government has taken a number of measures to redress its deterioratingbalance of payments. Several rounds of import restrictions, includinglimitations on the volume of agricultural imports, have been introduced since1981, and budgeted spending was cut drastically. As a result, the domesticprice of agricultural goods has risen, especially sharply in the last year(1983/84). While there has been some nominal depreciation in the value of thenaira, it has not been sufficient to make the agricultural sector morecompetitive (in fact, the real value of the naira appreciated a further 14percent in 1983); it is the effect of these quantitative restrictions (QRs)which has been the dominant factor in the rise in prices. At the same time,the drop in oil revenues has meant a fall in real public expenditures on(recurrent and capital) investment in agriculture; the impact of this though,is hard to foresee, as the bulk of the investments so far have been in longgestation irrigation projects which have not yet been completed.

1.05 Thus, until about 1981 Nigerian agricultural prices weresimultaneously high by international standards (at the official exchange rate)and low in terms of being able to attract domestic resources. For the lastfew years, prices have been even higher by international standards, and havealso been reasonably high in terms of being able to attract domesticresources. The previous history of erratic and fluctuating policies whichaffected incentives probably meant that the effects of the higher prices inthe first year or two were very much weakened. It is only in the last year ortwo that they seem to be having an effect on investment and use of currentinputs in the sector. The need is now to make these incentives moreconsistent and systematic, taking advantage of the natural protectionafforded by the balance-of-payments crisis; and to avoid the stop-gospending and trade policies which have resulted in significanc setbacks forachieving long-term development objectives.

Agricultural Performance

1.06 While firm estimates of production and production trends cannot bemade, for reasons which will be explained below, there are plenty of grounds

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for concern over agriculture's performance, at least until around 1982, whenthis data series ends. It is worth examining this period, to draw lessons forthe future, even though informal sources indicate that the very high levelsthat agricultural prices have reached since 1982 have begun to have an effecton production. The trends examined here, then, are more relevant to the oilsyndrome period of booming oil revenues.

1.07 Cash Crops. In the early 1960s, more than 80 percent of Nigeria'sexports were made up of agricultural commodities and agro-allied products.These now account for less than 2 percent, of which cocoa beans are thesignificant component. Cocoa exports fluctuated widely in the 1970s, but thelong-term trend was declining. Groundnuts, palm oil, and cotton disappearedaltogether from the list of exported items, partly as a result of expandingdomestic demand and partly because of declining production, the latter beingthe predominant factor.

1.08 FAO has documented a dramatic decline in the output of most cashcrops (cocoa, rubber, palm kernel, cotton, and groundnuts) during the 1970s,the only exception being palm oil. Cash crops suffer not only from theoverall bias against agriculture, but also from competition with food cropssuch as maize, which offer better returns to the farmer.

1.09 Food Staples. The situation with regard to production of foodstaples (root crops and grains) is much less clear. There are five majorsources of information on these crops: the Federal Office of Statistics(FOS); the Central Bank of Nigeria (CBN); the Federal Department ofAgriculture; the U.N. Food and Agriculture Organization (FAO); and the U.S.Department of Agriculture (USDA). Their estimates vary considerably, as canbe seen from the data for 1970-82 presented in Table 1.1 1/ (for all butFDA). In the case of cassava, for example, 1982 production is estimated at0.6 million tons by the FOS and 11.8 million tons by USDA. In general, thedivergence is greatest for root crops and rice; maize provokes morecontroversy than sorghum and millet. Estimated growth rates also vary widely,ranging from -10.1 percent per annum for 1970-80 according to FOS, to 1.9percent per annum according to FAO for root crops alone. Furthermore, growthdiscrepancies do not appear to have narrowed over time.

1.10 The FOS is the only source whose estimates are based on field surveysand so are primary information. However, the FOS rural surveys do not capturethe more commercial and dynamic components of the sector; as a result, ittends to underestimate production levels. Its measures of root cropproduction also seem to be particularly deficient. The CBN applies adjustmentfactors to the FOS data in order to rectify the commercial enterprise gap, butits nnalysis is also subject to certain qualifications. The FAO and USDAinformation is indirect, with a demand dimension included in the supplyestimates; this makes their long-term production estimates more realistic, butdoes not capture year-to-year changes accurately. For example, while the1973-81 FOS coefficient of variation on all root crops is 0.09, for USDA it isonly 0.01.

1/ There are even slight discrepancies in data from the same source.

Table .1.1 ;, PS04WCTION ESTI1TWIS F'O NIM:HIAN ACRICULTI3II, 1970-12, Ran.l cOPrs AND CAIMNS(in thousand metric tons)

Annual Crowth Rates (%)

Crop Source 1970 1971 1972 1973 1974 1975 1976 1977 1971 1979 3930 1953 1982 1970-80 1972-62 1977-S2

Yams FOS 12,303 lI,875 7,182 6,936 7,131 8,621 6,560 6,667 5,600 5,142 S,214 5,207 *8.1 .3.sbJ 1..o0/tBN 5,230 7,090 7,755 7,049 7,213 7,902 3,504 6,976 7,468 6,955 6,400 6,s02 7,016 *2.s -4.0 0.3USDA IS.200 16,104 36,257 l3,800 17,200 17,600 33,u000 1,000 38,100 18,100 35,310 18,300 36,480 3.1 1.3 o.s

Cassava FOS S,324 4,S36 2,s73 2,002 3,s52 4,314 1,876 1,900 1,S73 3,402 788 ss5 -17.4 *3s.31L/ *2S7!CNN 5,180 4,719 3.15b 2,729 3,2n6 3,352 3,237 2,935 2,009 3,976 I2,08 2,159 2,305 -9.1 -3.1 3.6ulnA 11,871 12,396 32,700 13,010 23,300 33,60n 33,900 14,000 24,350 14,600 13,100 11,800 11,700 1.0 .0.3 -3.5

Cucoy.au CbN I,3.19 972 1,190 12308 946 506 S41 524 356 210 22s 241 257 .16.3 .-1.2 .13.3UL%uA ,453IS 1,565 2,600 1,641) 1,680 1,700 1.7111 1,710u 1,730 1,727 1,750 1.6 1.2 0,6

5,ot 10/ 17,627 16,393 I 0,755 9,833 30,720 12,935 8,436 8,567 7,178 6,544 6,072 5,787 .3l.a./ .5.6!/Y!/ .9,3I/crops CUN 14,749 13,683 12,3104 11,06 31,36S 11,760 12,289 9,435 9.833 9,171 8,613 8.902 9,581 -5.2 -2.3 0.3

FAn 25,073' 2S,847 26,o07 26,997 27,512 28,230 27,730 28,755 29,S65 30,294 1.9 3.0s/UVDA 28,s749 31,36S 32,100 32,840 33,S5o 33,700 33,.9(O 34,410 32,9'o 31,727 31,930 2.5 o,l/ -1.1

Sorglaut lOS 4,05J s,794 2,298 3,12s 4,734 3,32S 2,9So 3,327 2,309 2,402 3,S62 3,715 *1.3 s.S 2.galCox 4,044 5,26S 3,367 2,597 3,717 4,372 3,333 3,356 3,628 3,399 4,122 4,413 4,714 0.2 3.4 7.0

tAO 3,816 3,140 3,561 2,968 3,500 3,680 3,680 3,7SO 3,760 3,78s 3,800 0 0M4 E. 4sULSDA 3,767 3,140 3,563 2,sb8 3,500 3,680 3,680 3,750 3,760 3,785 3,800 3,700 3,550 0 0.3 0.5 2

millet I(;s 3,306 2,135 2.391 3,794 5,554 4,737 2,893 2,577 2,342 2,366 2,351 2,802 -2.7 I.Ayb 2.1CSI 3,077 2,911 2,524 2,940 4,452 4,839 2,839 3,079 3,025 2,714 3,445 3,691 3,944 1.1 4.6 5s.FAO 2,763 2,946 3,048 2,3S0 2,800 2,805 2.80s 2,950 3,200 3,130 3,200 2.5 2.7S/USDA 3,000 2,633 3,048 2,150 2,8no 2,865 2,8bS 2,9s0 3,300 3,330 3,130 3,33n 3,275 0.3 0.7 2,1

Muize Jos 1,443 2,274 639 803 528 3,332 3,075 753 478 491 653 764 -7.6 2.0W 0.4!/CA4 1,37b 1,322 830 704 746 780 1,.311 3,037 772 760 74S 76S 816 -6.0 .0.2 .4.7IAO 1,299 933 1,064 547 1,215 2,300 3,300 2,350 3,480 3,500 1,550 3,580 2.t S.4J/US1A 3,259 3,042 3,142 3,287 3,350 3,400 1,440 3,500 1,640 3,670 1.72n 1,750 1,7S5 3.2 4.2 3.5CL1-S 3,120 3.0

Co.rse FUS 5,602 9.001 5,328 7,727 30,826 9,394 6,918 6,6s7 5,129 5,259 6,566 7,281 .2.7 LAbJ 2.35/grains CAN 1,497 9,498 6,721 6,241 8,915 9,991 7,318 7,472 7,42S 6,873 8,319 3,869 9,474 -0.2 3.S 4.9

lAO 7,e78 7,024 7,673 5,86s 7,515 7,785 7,785 8,0s0 8,340 8,415 3,s5o 0.8 2.0E/USDA *,116 6,870 7,791 6,405 7,650 7,94S 7,985 8,200 8,500 8,585 8,650 3,630 5,910 0.6 3.4 1.7

Riee los 280 279 449 487 836 535 218 4n0 169 156 9b 211 -10.2 *6.0b/ -15.2(paddy) I:h 293 279 397 468 513 543 456 304 446 294 306 326 374 0.4 -0.6 4.2

FAO .343 333 447 487 S25 SIS 534 647 SIS 600 72s 7.8 3.95/U3DA 425 462 4e6 514 523 600 623 620 b26 870 I,wJ0 1,240 1,375 9.9 17.3 11.4CIN-S 700 S.1

Elieat C:0.N 19 20 20 IS 28 la 20 21 22 22 24 26 27IAO 6 6 7 6 4 6 7 7 a n.a. I5USU% i8 20 20 IS 38 IS 20 21 21 21 21 25 30tIN-S 45

The aj tern,livo sources of the estimates are us follows: NntesI/ tg9-e3IIl Federal Office of Statistics of Nigeria f.l 9712-83IuN Central Oiank of Nigeria */ 1977-IllFAOI U.N. Food and Agriculture Organization a/ yams antl cass.va only

USriu U.s. l-partment or Agrictulture c/ 19J73-H2IK'l- - wntr l lank of Nigeria, S3'oc3lu Survey of lqurt ' averape u'r tihc thrr. yp4irs 91,96971

IlG I { iu li 'raiiai 3 23i I I "198?2 Il Ul 1,: .1071 lawJer,i estisato for cecayia

1.11 In Annex I, an attempt is made to narrow the range of disagreementamong the various sources by testing the data against several indirectmeasures. Thus, the FAO and USDA estimates are compatible with a daily percapita calorie consumption in the range of 2,000-2,500 calories, which wouldbe typical of a country with Nigeria's approximate income level. The FOS andCBN estimates, on the other hand, would imply that the average Nigeriansuffered severe malnutrition, clearly not the case.

1.12 Another perspective on reported production levels is provided bytheir implicit land requirements. When multi-cropping is included, totalcultivated land in Nigeria is about 34 million hectares, with grains and rootcrops occupying 70-90 percent of the total. On this basis, and given what isknown about yields per hectare of various crops in various parts of thecountry, the USDA estimates may be slightly high.

1.13 One further anomaly in the data needs to be explained. No matter howproduction levels are looked at, all four sources concur in showing a declinein per capita staple food availability during 1970-82, despite the substantialrise in imports. Disagreements over specific crops continue, but the trend isnot disputed. However, on the assumptions that total private consumption grewat 6.5 percent per annum in 1973-81 and expenditure elasticity of demand was0.6, food supplies actually should have risen by 5 percent per annum 1/ ratherthan remained constant.

1.14 A number of hypotheses have been used to explain this supposed dropin per capita food supplies during a period of economic boom. They are:

vi) Real private consumption actually grew much less rapidly;

(ii) Income distribution worsened sufficiently so that a constantper capita food availability was consistent with the reportedaggregate consumption growth;

(iii) Food consumption actually increased but in non-staples ratherthan in staple foods;

(iv) Relative prices changed sufficiently to induce alternative(iii) or to induce a shift out of food consumption and intonon-foods;

(v) Reported growth rates in food production are too low;

(vi) A combination of the above possibilities.

1.15 The analysis in Annex I suggests, however, that none of thesehypotheses, alone or together, is sufficient to bring about an estimate ofdeclining food supply. Although one could argue that quantities demanded

1/ This figure is obtained as follows: 3.8% x 0.6 + 2.7% - 4.98%; with3.8 percent representing the per capita growth of the privateconsumption, and 2.7 percent the assumed growth rate of the population.

ex ante do not necessarily equal quantities supplied, if indeed supply weremuch lower than demand, a marked real increase in the price of food (relativeto other commodities) would have been observed--which was not the case (thisis hypothesis iv restated). It seems likely, therefore, that food supplies inNigeria actually increased in absolute terms, probably at around thepopulation growth rate. There may even have been a marginal rise in percapita terms. Our tentative estimate is that, allowing for income-distribution and non-staple food effects (hypotheses ii and iii) and arelative price effect (hypothesis iv) 1/, the denand for staple food grew at2.9 percent per annum, or 0.2 percent per capita. This is a rather low buttypical rate for many developing countries.

1.16 Some of this growth in demand was met by recorded imports. Someunrecorded imports might also be involved, and although the total foodsupplies of Nigeria's neighboring countries would be small relative to thesize of the Nigerian market, it is possible that smuggling could account for asignificant share of the missing residual. However, it is probably safe tosay that domestic food production would have been available to meet some ofthe growth in demand. After taking into consideration the growth in recordedimports and some possible growth in unrecorded imports, it seems safe toconclude that domestic food production probably grew at, or somewhat under,the assumed population growth rate of 2.7 percent per annum. It is possible,but not very likely, that the population growth zate of 2.7 percent per annumis an overestimate: if this were the case, it would account for some of theapparent difference. What is clear, though, is that the figures are subjectto large estimating errors.

1.17 Agricultural Imports. Imports of key foodstuffs increased from $200million in 1971 to about $2,300 million in 1980, excluding fishery andforestry products. Seventeen percent of total imports in 1982 were comprisedof foodstuffs, the most important of which are cereals, sugar, milk, vegetableoil, and live animals (mainly poultry). In 1983, the Government took steps tolimit the volume of agricultural imports. Prior to that, import policies hadfluctuated in response to shifting priorities with regard to increasing foodsupplies (and limiting food price increases) for consumers versus stimulatingdomestic food production and rural incomes.

1.18 Agricultural Constraiuts. Among the various obstacles besides pricepolicies that hinder the production of the agricultural sector are: risinglabor costs due to the phenomenon of the "oil syndrome"; an unreliable systemof input supplies; poor extension services that obstruct an efficient dissemi-nation of new technology among farmers; lack of proper infrastructural facili-

1/ The data on farmgate versus market prices (see Annexes I and III)are consistent with hypothesis (iv), and with one principal finding inthe rest of the report (that output prices for farmers were depressed),which apparently would run counter to it. The data show that during theperiod 1976-82 farmgate prices rose less fast than the CPI, while retailprices for agricultural output grew faster. This implies an increase inmarketing margins, the reason for which is not immediately obvious.However, this issue would need to be explored elsewhere.

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ties, particularly transportation, that inhibit marketing and sales as well asproduction; inadequately developed credit institutions that neglect the needsof the vast majority of smallholders; inappropriate marketing board policiesthat are a disincentive to on-farm activities and export crop production; andthe prevalence of a traditional system of land tenure that dampens privateinvestment in land conservation and improvement. Perhaps a more fundamentalconstraint has been an agronomic one--the absence of any major new highyielding varieties suitable for rainfed agriculture in these zones. Inaddition, crop-specific problems relate to particular plant diseases and toclimatic hazards like droughts. Although some useful work has been done onmaize, upland rice, cowpea, drought resistant sorghums and millets, anddisease-resistant cassava, an additional problem has been the poorly organisednational system of foundation seed production and its subsequentmultiplication. Moreover, in recent years the tightening of publicexpenditure programs has left many of the state-run agricultural programsshort of funds.

Strategy and Policy Framework

1.19 Objectives. The goals of agricultural policy in Nigeria are statedin the Fourth National Development Plan (1981-85) 1/ and are essentially thesame as those in the Third Plan (1975-80). Both documents emphasized thefollowing objectives: (i) attainment of food self-sufficiency and highernutrition levels, (ii) recuperation of the role of export crops,(iii) generation of agricultural employment, (iv) expansion of agro-industriallinkages, (v) improvement of rural economic institutions, and (vi) promotionof a more egalitarian distribution of incomes. The Fifth Plan is aow underpreparation, and there are as yet no signs that the goals of agriculturalpolicy will depart substantially from those of the previous two.

1.20 Not all the above objectives claim the same priority. It appears,for example, that agricultural employment generation no longer claims thepriority it once did. During the oil boom years, there were importantseasonal shortages of agricultural labor. In fact, several Governmentactions--like increased tractor imports and production--indicated a relativeshift in policy toward large-scale agricultural mechanization. In the lightof the effects of the recession on the labor market, this strategy need re-assessing.

1.21 Rural income distribution does not appear to figure importantly inpolicy priorities either. Perhaps this is because the vast majority ofNigerian farmers are smallholders, with comparably sized farms. In addition,the rapidly expanding opportunities for urban and off-farm employment in theoil boom years offered an alternative for those at the lower end of the incomescale. However, as this situation has been reversed, rural incomedistribution should perhaps be considered as an important issue again.

1J Federal Republic of Nigeria, Fourth National Development Plan1981-85, Volume 1, pages 78 and 79, January 1981.

1.22 While improvements in rural economic institutions and promotion ofagro- ndustrial linkages are given some weight, it is clear that the principalGovernment objective is to increase agricultural production. In the shortrun, the objective is to reduce agricultural imports and consequently ease thecritical foreign exchange position of the Government. But in the long run,the objective is to promote agricultural development such that the cash-cropsector becomes a net foreign exchange earner while the food sector develops tothe point of giving Nigeria food security and self-sufficiency. In addition,an increase in output will raise rural incomes and thus slow migration fromrural to urban areas.

1.23 Strategies. Underlying these broad national objectives is theserious concern of the Government to prepare the economy for the post-oil eraby developing a viable agricultural sector, and reducing Nigeria'soverwhelming dependence on the oil sector. To this end, the Fourth Plan wasaimed at channelling oil revenues toward raising agricultural production.

1.24 The Fourth Plan strategy was quite different from that of thel970s. During the earlier decade, the Government tried to maintain a balancebetween tree-crop and food development programs. With the onset of the 1980s,the emphasis switched to food production and related programs. Thus, thethree basic elements identified in the Fourth Plan are: (i) a high preferencefor food crops, even at the expense of cash crops; (ii) investments geared tothe input delivery system in order to boost production; (iii) a policy focuson smallholders, who now account for 80-90 percent of food production, not ondistributional grounds per se but rather as the most effective way of raisingfood production.

1.25 Agricultural Investment. Total actual expenditure (recurrent andcapital) on agriculture by the Federal and state governments in the early '80saveraged nearly N800 million a year, excluding investments in the River BasinDevelopment Authorities, now re-organized as the River Basin and RuralDevelopment Authorities (RBRDA's). This is almost twice the annualexpenditure during the Third Plan period, and most of the expansion isattributable to capital spending. The rapid increase in investment reflectsthe Government's determination to reduce the growing domestic food gap andneed for imports, as indicated in the Food Production Plan" launched in1980. Nonetheless, the share of agriculture in total government spendingremains small (about 4-5 percent).

1.26 The Need for Incentives. Investment policies are essential to anygrowth-related strategy, but pricing policies are also important in the longand short run. What is required now is a system of incentives both adequateand efficient to restore the agricultural sector to the point where it canonce again be a reliable source of incomes, employment, foreign exchange andfood security for Nigeria. This is all the more important because Nigerianoil export revenues are expected to start declining in real terms in the1990s, when the growth in domestic demand outweighs the growth in exports.

1.27 Given the Government's aim of stimulating agricultural production, itis essential that the price mechanism be used to provide adequate farmincentives. A sufficient change in output prices could, at least partially,

offset the higher labor costs being incurred by Nigerian farmers. For pricingpolicy to have a long-run role, however, it must have continuity andconsistency over time, something which has not been the case in Nigerianagriculture in recent years. Ideally, the most effective and efficientstrategy would be one that can induce sufficient technical progress to makeNigeria more nearly competitive in world agricultural markets and,simultaneously, sustain rural incomes at reasonable levels.

1.28 There have been a number of studies on producer supply response tohigher prices in Nigeria. 1/ Taken together with informal evidence from theBank's project experience, they suggest a reasonable degree of responsiveness,even in the short run. For example, cotton and groundnut acreage in the ADPshas declined in favor of grains production; project reports indicate that thecauses are low prices coupled with recent wage increases, which wereparticularly devastating for producers of highly labor-intensive crops. Asmall cross-sectional "sample- of six principal crops with an impliedelasticity of 0.6, together with Nigerian econometric studies andinternational evidence, provide a fairly compelling picture to the effectthat, at least in the short run, Nigerian farmers do respond to changes inoutput prices relative to input prices. A recent study of subsistence farmingin northern Nigeria also concluded: when new techniques are superior totraditional methods,...and when a profitable relationship exists between inputand output prices, small farmers respond with amazing agility.-2/ While someobservers question the sector's price responsiveness, no one has yet cited acase in which relative prices moved in a favorable direction and farmers didnot respond with production increases.

1.29 These observations support the advisability of sustaining producerprices at levels above international prices (as long as the exchange rate isabove its "medium-term' equilibrium) given the Government's objectives.Although Nigerian prices are already at such levels, pricing policy is not yetadequate, for the following principal reasons:

vi) Consistency has not yet been implemented as a principle ofpolicy: by and large, support for farmers has been sacrificedwhen there has been foreign exchange available for food imports(even if the import is not grown domestically-e.g. wheat-this

1/ (a) J. K. Olayemi and S. 0. Olayide, -The Structure of PriceResponse in Nigerian Rubber Production: A Polynominal Lag Model,'Malayan Economic Review, vol. 20, October 1975, pp. 12-21.

(b) S. 0. Olayide, "Agricultural Policy for Nigerian Small Farmers," inNigerian Small Farmers, Problems and Prospects in Integrated RuralDevelopment, S. 0. Olayide, J. A. Eweka, and V. W. Bello-Osagie, eds.,University of Ibadan, 1980.

2/ Jean-Claude Balcet, -Adoption of New Farm Technology by SubsistenceFarmers in Northern Nigeria" of the Departments of Agriculture and RuralDevelopment and Western Africa Projects, World B.ank, January 20, 1982,pp. ii-iii. (italics added)

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still has an impact on domestic prices, because of thesubstitutability between foods);

(ii) There is too wide a divergence between crops in the tariff ratesapplied;

(iii) Export crops do not enjoy the same rate of protection asdomestic crops; and

(iv) Private importers are enjoying super-profits" on importlicences, which should be replaced by higher revenues forexporters (through a devaluation) and/or for the Government(through the combined effects of devaluation and higher importtariffs).

The remainder of this report will discuss the role of various aspectsof pricing policy and incentives in raising agricultural production.

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Chapter 2

AGRICULTURAL INPUTS: INCENTIVES AND DISINCENTIVES

2.01 A wide range of Nigerian policies directly or indirectly affect thedevelopment of the agricultural sector. These policies fall under three broadheadings: trade and exchange rate policies; pricing policies, and directintervention in agriculture through Government TInvestment in extensionservices, research development, feeder roads, etc. The issues surroundingpublic investment in agriculture have been discussed in a complementary WorldBank report.1/ This chapter and the next will discuss pricing policyissues - with this chapter focussing on agricultural inputs and Chapter 3 onoutput subsidies through administered prices. Trade and exchange ratepolicies, which seem to exert a stronger influence on output prices in Nigeriathan do other agriculture-related policies, will be covered inChapter 4.

Agricultural Input Subsidies

2.02 Most of the special programs to boost food production initiatedduring the 1970s used farm input subsidies as their major incentive, and suchsubsidies continue to be an important component of Nigeria's agriculturaldevelopment strategy. They are now extended on a wide range of inputs such asfertilizer, improved seeds, pesticides, and agricultural machinery and on avariety of services such as bush clearing, irrigation, agricultural researchand extension as well as on various credit schemes. The Fourth Plan and the"Green Revolution Program", the two documents that most comprehensively defineGovernment objectives and strategies for agriculture over the 1980s,anticipate substantial outlays for input subsidies. According to the GreenRevolution Program document, the fertilizer subsidy alone was expected toexceed Nl billion in 1981-85.

2.03 Input subsid-- increased in percentage terms when the volume ofinputs (and thus the total value of the subsidy) was fairly small and oilrevenues were high. Now the value of the subsidies is large, and oil revenueshave dropped, so that the Goverment has to be especially careful that a nairaspent on subsidies has at least as much economic value as a naira spentelsewhere in the economy. An emphasis on input subsidies can be justified,from the point of view of economic efficiency, on two principal grounds.First, there is a need to channel resource allocation by farmers along linesthat maximize net social benefits. An example of this case would be the useof pesticides which have higher social than private returns. The second,probably principal, case is based on the -learning curve' argument: that it isnecessary to subsidize these inputs to encourage risk-averse farmers to learnto use them, since they will not do so fast or intensively enough without thesubsidies. Needless to say, subsidies to support services to agriculturewhich are not easily provided by the private sector (e.g. researrh and

1/ Nigeria - Agricultural Sector Memorandum (Report No.4723-UNI,February 25, 1985).

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extension) or to some types of infrastructure (e.g. roads and surfaceirrigation) generally fall into the first case; and since the justificationfor this group of subsidies is on the whole more clear-cut, they are notdiscussed in this report. Finally, if these two conditions are met, temporarysubsidies which encourage the adoption of economically profitable techniquescan be viewed as a form of investment in raising the production potential ofthe agricultural sector. It should also be pointed out that the case forsubsidies will be affected by the degree to which subsidies reach the intendedbeneficiaries, by the characteristics of the target group, and by the budgetcost. Another consideration is that it is politically difficult to reducesubsidies, so they should be initiated only if the economic benefits are veryclear. Finally, it should be noted that the recommendations on inputsubsidies that follow are made in conjunction with those on removingdistortions in output prices, so that the net effect on incentives to thesector would be positive.

2.04 A proper evaluation of input-subsidy policy requires detailed data onfarm operations to help establish the elasticities of key relationships suchas that between input use and input farmgate price or that between input useand output response. Good data can also help in evaluating the consequencesof alternative policies such as those involving output price changes or theprovision of concessional credit.

2.05 In the following pages, available microeconomic farm data are used toexamine each existing subsidy in terms of: its claims on the federalagricultural budget; demand, as revealed by actual or potential use of therelevant input; necessity, as revealed by general views on the social benefitsof extending the subsidy; effectiveness, as measured by the extent to whichthe subsidy value is reduced in the process of delivery to the farmer; andimpact on farm incomes and production.

Discussion of Particular Input Subsidies

2.06 It is clear that while the exchange rate remains overvalued, aneconomic subsidy is provided to imported inputs, particularly large in thecase of fertilizer and agricultural machinery. However, if therecommendations on trade and tariff policy made in this report areimplemented, most of the economic subsidy would be removed. Thus thediscussion of specific subsidies here is by and large limited to financialsubsidies. The focus is on subsidies given to fertilizer, bush clearing,agricultural machinery and tractor hire services, pesticides, and seeds.Table 2.1 summarizes the mission's estimate of their recent monetary value.

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Table 2.1: AGRICULTURAL INPUT SUBSIDY ESTIMATES(In millions of Naira)

Input 1977/78 1981 1982

Fertilizer 34.0 199.0 135.0Bush Clearing 9.0 29.5 48.3Agricultural Machinery andTractor Hire Services 3.0 6.0 6.0Equipment Sale - 7.5 5.0Pesticides - 13.5 21.2Seeds 2.0 1.0 1.3

Total 48.0 256.5 216.8Total as a Z of Agric. Exp. 10.2 33.1 27.4

Memo Items:

Expenditure on Agriculture a/ 469.0 ?77.o ,92.0Federal 179.0 356.0 423.0State 290.0 4ZO.0 369.0

Source: Mission estimates.

Note: a/ It includes recurrent and capital expenditures.

2.07 Fertilizer. Between 1975 and 1983, the procurement -.nd delivery offertilizers was centrally administered by the Procurement and DistributionDivision (FPDD) of the Federal Dep.artmaei- of Agriculture. The states, RBRDAs,ADPs, and other institutions estimated their fertilizer needs in advance ofeach cropping season. These estimates were then reassessed and approved bythe FPDD on the basis of budgetary considerations.

2.08 Once the Central Bank approved the allocations and opened letters ofcredit, tenders were invited and orders placed. Most of the fertilizer wastrucked from port to state warehouses for delivery to individual users. TheGovernment made the fertilizer available to states at half its cost ofimportation and delivery. The states, in turn, were supposed to sell thefertilizer to users at half their cost of procurement. The official subsidyrate was thus supposed to be 75 percent.

2.09 The Bank mission calculated the total and per-metric-ton offertilizer subsidy provided during 1979-82 (see Annex III, Table 27). Thefollowi-g comments can be made. The total subsidy involved was quite large,amounting to roughly N135 million in 1982. The subsidy rate worked out to beclose to 85 percent, rather than the 75 percent mandated by the Government,

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apparently because the states did not recover within-state transportationcosts from farmers. Finally, the delivery process within Nigeria accountedfor 40 percent of the cost at farmgate and 66 percent of the CIF-Lagos price.

2.10 There are several reasons to believe, however, that FPDD dataoverstates the value of the fertilizer subsidy in terms of its impact on farmincomes and production. First, it is widely believed that not as muchfertilizer was actually delivered to Nigerian farmers as was bought by theFPDD. Substantial leakages occurred in the transportation process, from portto state warehouses, and in the delivery process, from state distributionoutlets to farmers. In addition, there is evidence that fertilizer was beingsmuggled to neighboring countries where the price was higher.

2.11 Second, fertilizer demand (at official prices) far outstripped supplyand a vigorous black market sprang up over the years. There is evidence thatthe black-market price for fertilizer was three to four times the officialprice and that many smallholders actually paid the black-market price. Appa-rently, the primary recipients of fertilizer at the official, concessionalprice were the larger farmers and those included in the ADP system. It ismisleading, therefore, to think that most Nigerian farmers were being subsi-dized to the tune of R5 percent or so in their fertilizer purchases.

2.12 Third, delivery delays, often affecting a large proportion of thestocks, led to erroneous estimates of the actual impact of the suibsidy programfrom year to year. Orders placed for the 1982 cropping season, for example,were not filled in time because of delays in opening letters of credit; thus,almost half the stock received by the FPDD was carried over into the 1983cropping season. The mission estimates, then, that-at least until the WorldBank's Fertilizer Loan became effective-fertilizer was being made availableat much lower levels than those anticipated in the Fourth Plan. Foreignexchange scarcity appears to have been responsible for this, and the problemcan only have been compounded !v the inefficiency of the delivery system.

2.13 Substantial reductions were made in the financial subsidy during1984. The subsidy rate was cut from an effective 85 percent to 34 percent, asa result of which, official farmgate prices increased fourfold from N2.1 to N8.8 per bag. However, the economic subsidy remains high due to theovervaluation of the Naira. It is estimated that the total value of thefertilizer subsidy was approximately N83 million in 1984. Following a recentFederal Government decision to make the National Fertilizer Company ofNigeria, Ltd. (NAFCON) responsible only for the Onne fertilizer plant and notfor fertilizer distribution, the planned commercialization of fertilizeroperations has been delayed. The government is drawing up an alternativecommercialization plan, in the interim, FPDD, with technical assistance, isresponsible for the procurement and distribution of fertilizer.

2.14 The issues surrounding the fertilizer subsidy policy are somewhatunclear, largely because of the absence of definitive data on actual practices(both agronomic and economic); on the extent of yield response in the farmersfields; and on the potential yield response with improved seed varieties,fertilizer mixes and application practices. What does seem to be establishedis that the on-farm yield response of maize is good, but that the response of

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traditional varieties of sorghum and millet has been disappointing in thedrier areas. However, to what extent the latter is due to the low level ofmaximu response of existing varieties, the inappropriate formulae being sold,or the suboptimal methods of application, is not certain. What the studies dohighlight, though, is the importance of agronomic research to develop the moreresponsive varieties and the more appropriate fertilizer mixes.

2.15 A necessary condition for supporting an input subsidy on efficiencygrounds is that the use of this input be economically justified with actual orexpected practices, i.e. that the economic benefit-cost ratio is positive. Asa further necessary condition, it needs to be demonstrated either that thepotential users of it are going through a learning phase and need to beencouraged (the "learning curve' argument), or that the social benefit-costratio of the input use exceeds the private one. While it might be argued thatthe application of fertilizer to maize satisfies the first condition, it doesnot appear to satisfy either of the second group: it seems that its use is soprofitable that farmers learn very quickly to apply it and do not appear toneed further encouragement. As far as the other crops are concerned, theuncertainty surrounding the economic benefits of fertilizer use aresufficiently great that they cannot justify a subsidy, at least until it canbe clearly demonstrated that both of the necessary conditions hold forexisting technologies, or until new varieties or fertilizer mixes can bedeveloped for which the necessary conditions would hold. However, even if itcan be shown that a fertilizer subsidy would be justified on a new crop, or ina certain region, there is the practical problem of how to prevent subsidisedfertilizer being used on the 'wrong" crops: probably the only way to managethis is if the 'right" crop requires a certain fertilizer blend that othercrops do not. The policy implications for the fertilizer subsidy, then, arethat the financial subsidy 1/be phased out. This should probably be done instages, so as to give farmers time to adjust to the new relative prices. Atthe same time, emphasis should be giver to developing new, more responsivevarieties and more appropriate fertilizer mixes; finally, a study should beundertaken to assess the economic benefits of fertilizer use for differentcrops, fertilizer mixes, and under different agro-climatic zones.

2.16 Agricultural Mechanization. The two principal forms of agriculturalmechanization in Nigeria have been mechanized bush clearing and landpreparation. They have been very heavily subsidised over the last ten yearsthrough various types of explicit and implicit subsidies, and yetmechanization of Nigeria's agriculture is still insignificant. This suggeststhat there are important technical problems (and associated costs) ofmechanization which are not immediately obvious.

2.17 The explicit subsidies have been provided through sales and rental ofmachinery for land preparation and through the direct provision of servicesfor bush clearing. Subsidies through the sale of machinery (such as tractors,harvesters, planters, ploughs and harrows) and through the rental of machinery

1/ As noted in para. 2.06 above, the economic subsidy would be largelyremoved if the recommendations on the trade and tariff policy made inthis report are followed.

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services amounted to a total value in the range of Nl1-14 million per year in1981 and 1982, representing subsidies on the sale of machinery of up to 50%,and on rental of 50-75%. Several agencies are involved in the distribution oZthese subsidies, with the most important being the Agricultural EngineeringUnit of the FDA, State agriculture ministries and sub-units, and the RBRDA's.

2.18 It is estimated that the total cost of bush-clearing services, whichrepresents the subsidy, amounted to roughly N48m, constituting 22% of thevalue of all input subsidies in 1982. In recent years, the services have beenprovided largely by the RBRDA's, while formerly they were a Stateresponsibility.

2.19 The implicit subsidies have been equally, if not more significant,and have consisted of: the overvalued exchange rate (which made imports ofmachinery cheap relative to labor or animal traction); the duty-free statusof agricultural machinery imports, which made them cheaper even than mostother imports; the large (financial and economic) subsidies to domesticfuel; and the subsidies on credit for the purchase of agricultural machinery.

2.20 Given these huge explicit and implicit subsidies to mechanization, itis very surprising that so little mechanization has taken place. An argumenthas been made that the reason for this lies in the poor incentives to thesector that prevailed in the 1970's, due to depressed output prices. However,the combined explicit and implicit subsidies to mechanization were so largethat they would have more than offset the low output prices. This suggeststhat there are important technical problems (and related costs) associatedwith mechanization that are not immediately apparent. Following an outline ofthe technical problems, the costs, both financial and economic will beinvestigated.

2.21 There are two principal technical drawbacks to mechanised land-clearing. The first is that in practice this clearing technique usuallyentails the removal of most of the vegetative material which suppliecconsiderable quantities of fertility under the slash-and-burn technique.Secondly, it leaves the soil exposed to erosion, especially where the land isundulating and the top-soil thin. The risk of erosion can be reduced if atree crop is planted immediately on the cleared land. However, where a treecrop is not planted, in theory these problems can be avoided to some extentthrough the use of careful techniques, but experience in Nigeria to date hasshown that the cost of these act as a disincentive to private operatc:s.

2.22 If the land is being cleared for mechanized land preparation, thenall the tree stumps have to be removed, otherwise the equipment would bedamaged (the standards of de-stumping required are not nearly so high if theland is to be prepared with animal traction, as the ploughs are light enoughto lift over or around the stumps). Further, continuous, mechanized landpreparation with heavy equipment also risks soil damage through excessivecompaction, or erosion where the top-soil is thin or the land undulating.Again, some of these problems could be avoided through the use of carefultechniques, but in practice, these have not been carried out, probably becausethe costs are too

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high.l/ Finally, the opportunity (and thus the demand) for mechanized landpreparation is limited in tree-crop systems, since the frequency of landpreparation is determined by that of new plantings (every 20-40 years).

2.23 If these technical problems associated with mechanized bush-clearingand land preparation are to be overcome, the high costs, both financial andeconomic, have to be borne: this of course limits the de-and for thesetechnologies. If the farmer using mechanized bush-clearing techniques has along enough time-horizon for the use of the land, then he would bear thefinancial costs of preventing a rapid decline in soil fertility, i.e. thecosts of careful techniques to minimise the risk of soil erosion, and tominimise the loss of soil nutrients from the vegetative cover which is usuallyremoved conpletely. On the other hand, if the farmer has a short time-horizon--a more likely case, since it seems that there is still some 'surplusland in Nigeria-then he is unlikely to make much effort to maintain soilfertility. Once the soil is eroded, or the fertility run down, it takes manyyears, if not decades, to build it up again. The risk for Nigeria, then, isthat large tracts of otherwise fertile land will become lost in this way, andwill not be restored before the country runs out of surplus land2/. Thus ifthe financial cost of maintaining soil fertility while clearing the landmechanically is not borne by the individual farmer, then it will become a moreserious economic cost, and will have to be borne by the society as a whole.

2.24 The same considerations apply to the loss of soil fertility fromexcessive conpaction due to continuous, annual mechanized land preparation.There are careful techniques which can be applied to minimise the damage, butthese act as a disincentive to private operators. In addition, the financialcost of de-stunping the land completely is very hiah. Furthermore, the unitcosts of mechanical land clearing or preparation on small holdings (thesouthern tree-crop systems are dominated by small holdings) becomeprohibitive, as the fixed cost of transporting the heavy equipment-especiallywhere roads are sub-standard -nd of setting it up and dismounting it are sohigh. And finally, if equity is a consideration, it adds a further argumentto removing subsidies to large-scale mechanization, since evidence from aroundthe world indicates that the use of this scale of technology encouragesincreased inequality in farm size distribution.

2.25 All this is not to say there is no scope for large-scalemechanization: indeed there are no doubt areas, particularly in the North andperhaps the middle belt, where the soil is not too fragile and the land fairly

1/ There is a mounting body of evidence pointing to the particularlyhigh economic costs of mechanization, including the risks of soildamage: this is summarised in P.L. Pingali, Y. Bigot and H.P. BinswangerAgricultural Mechanization and the Evolution of Farming Systems in Sub-Saharan Africa Agriculture and Rural Development, World Bank, May 1,1985.

2/ There are indications that many of the mechanically-cleared plotsare abandoned after a few years, presumably because of declining soilfertility and/or erosion.

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flat, where field crops are grown and where there are peak labor scarcitiessuch as to justify mechanized land clearing; similarly, there are certaintracts of land in the south which could be mechanically cleared for tree-cropplantations, where the risk of soil damage would be minimal. However, wherethere are such clear benefits, then mechanization would be demanded withoutthe subsidies, especially now that output price incentives (for importsubstitutes) have been restored. Certainly the ecological risks and long-runcosts of careless mechanization on the wrong soils do not justify a subsidy.Finally, it is inappropriate to perpetuate a labor-shortage view of theagricultural sector into a period when the balance between labor supply anddemand has shifted dramatically as a result of the oil recession: in otherwords, the real cost of labor in the short to medium term is likely to be muchlower than in the oil boom years, particularly when one considers the rapidpopulation growth, which will probably add 1.5-2.5 m. new entrants to thelabor market each year.

2.26 Neither is the above intended to argue that Nigerian agricultureshould be "condemnedt to the hoe and cutlass technology, which appears to havea strong social stigma attached to it. More effort should be directed toidentifying technologies to raise labor productivity, which are notexcessively costly and which do not have negative side-effects, such as soildamage. It is possible that animal traction (at least in the North and partsof the middle-belt) and small-scale mechanization (particularly in swamp-lands) would fit these requirements. These technologies have the addedadvantage of being more accessible to the small farmer, who will continue toproduce the bulk of Nigeria's agricultural output.

2.27 In conclusion, then, it is not clear that the economic benefitsoutweigh the economic costs of large-scale mechanization; and at least forsome major regions in Nigeria, the opposite would seem to be the case. Theeconomic benefits consist mainly of the power advantages of the machinery, andeconomies of scale, in some regions. The economic costs consist of: the lossof an annual stream of agricultural production benefits due to lower soilfertility and/or erosion; the scarce foreign exchange being allocated to theimport of machinery and of the spare parts needed for its maintenance; thepotential oil revenue lost through the consumption of fuel by the equipment;and the tariff revenue lost through according duty-free status to the importedmachinery.

2.28 The policy implications, then, are that the subsidies to large-scalemechanization of bush-clearing and land-preparation should be removedl/.These subsidies currently apply to the sale and rental of agriculturalmachinery, to the provision of bush-clearing services, and to the duty-freestatus of agricultural machinery. This argument is based on the absence ofevidence that the economic benefits of large-scale mechanization outweigh theeconomic costs. Mounting evidence of the negative impact of large-scalemechanization on the soil (through erosion, compaction, and lower nutrient

1/ As noted in para 2.06 above, the economic subsidies (except on fuel)would be largely removed if the recommendations on trade and tariffpolicy made in this report are followed.

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content) is an important factor on the cost side. Once the agriculturalsector becomes more profitable, private agents will invest in thesetechnologies of their own accord, if they are profitable. Efforts shouldinstead be directed to identifying technologies to raise labor productivity,which are not excessively costly, and which do not have negative side-effects,particularly on the soil. Support (through research, credit and supportservices) could then be provided on a temporary basis to encourage farmers toadopt the new technology. It is possible that animal traction (at least inthe North and parts of the middle-belt) and small-scale mechanization of landpreparation (particularly in swamp lands) would fit these requirements.

2.29 Pesticides. There are at least five groups of agencies that provideeither subsidized pesticides or funds with which to help finance the purchaseof pesticides. Relevant data is not available on all the agencies. Since themission was unable to collect data on the RBRDAs and state--level subsidyunits, projections prepared by Idachaba for the Green Revolution Program wereused as the basis for the mission's analysis.

2.30 The mission's estimate of total subsidy is about N14 million in 1981and N21 million in 1982. The rate of subsidy varies according to the agencyproviding the service and the type of crop and the pest problem involved. Thecocoa subsidy, introduced in the early 'sixties and maintained ever since, isthe biggest single subsidy. It is now extended partly through the CommodityBoard and partly through special programs organized by individual states andthe FDA for rehabilitating and boosting cocoa production. Crop-specificpesticide subsidies are also provided for cotton, groundnuts, maize, and rice,among other crops, mostly under special programs to boost production. In mostof these programs not only chemicals but also spraying equipment and labor areprovided. Subsidies are also provided through the Federal Department of PestControl Services, which is charged with spraying entire regions suffering frompest epidemics; they do not, however, amount to much (less than Ni million onaverage in 1981 and 1982).

2.31 Several factors are relevant to an assessment of the policyimplications of the pesticide subsidies. Useful distinctions can be madebetween farm-specific and area-wide pesticides; between insecticides andherbicides; and between technologies that the farmers have already adopted,and those they are still learning to use. Subsidies are not needed on farm-specific insecticides (such as seed-dressings), which are already widelyadopted at unsubsidised prices. They are justified where farmers are stilllearning to use them (e.g. herbicides in mixed cropping); or where area-wideepidemics or infestations (such as tstetse fly infestation) are involved, asin this case their social benefits far exceed the actual cost, and individualfarmers are not in a position to deal with such problems through private pestcontrol arrangements.

2.32 The cocoa pesticide scheme has been extensively studied. In a recentreport, Idachaba (1981) indicates that, even with present subsidy levels,farmers find pesticide application to be a very expensive proposition andhence do not apply optimal levels. However, while the government is keen onrehabilitating cocoa production and export, this should not lose sight ofcost: the economics of cocoa production should be examined, and along with it,

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the question of the pesticide subsidy. Protection for cocoa could be providedmore systematically by raising the output price subsidy, in line with that forother export crops.

2.33 Improved Seeds. The National Seed Service provides improved seedsthrough its seed-multiplication units. In the case of tree crops such as oilpalm, improved seedlings grown in state nurseries are provided under specialrehabilitation programs. The Bank mission was able to identify only aboutN1.3 million in seed subsidies in 1982. Even if other seed programs-those ofthe ADPs, RBRDAs, and special -crash" programs to raise the production ofselected crops such as rice and cassava, for which data was unavailable-aretaken into account, it is unlikely that the maximum estimates would be morethan twice as high. The subsidy rate varies across crops, but most seeds areprovided at around 50 percent of cost. The subsidy rate on some seeds islimited by the price of grain; if the price of seed were set below the priceof grain, the seed might be diverted from production to consumption, therebydefeating the purpose of the program.

2.34 The actual production of improved seeds has been far below thatrequired. For example, about 44,000 tons of improved seeds were required in1982 but less than a tenth of this was actually produced. The sameconsiderations apply to the policy implications for seed subsidies as forpesticide subsidies. Where farmers are still learning to use an improvedseed, and are not adopting it fast enough because of their risk aversion (thatis deemed to be excessive from society's point of view), then a subsidy iswarranted.

Agricultural Credit Subsidies

2.35 A fairly large subsidy is provided through the concessional agricul-tural credit scheme. The Bank mission estimates that the subsidy provided byformal sources in 1982 was about N35 million, of which the NigerianAgricultural and Cooperative Bauk (NACB) provided about N15-20 million. Theseestimates were derived by looking at the following three cost components ofthe NACB operations: procurement cost of capital; administrative cost ofoperating the credit delivery system; and the cost imposed by defaults. Onthis basis, the true financial costs of lending in that year were about 35percent, or about 10 percent if the rather high degree of default isexcluded. This compares with an inefficient lending rate of 6 percent (in1982). However, the rate has recently been raised to 8-9 X, which reduces thesubsidy somewhat.

2.36 Another way of calculating the subsidy would be to establish the'market price" of agricultural credit that informal lenders would charge.This is difficult to do, however, for very little information is available oninformal interest rates. Moreover, these rates are not the "effective rates,"because informal loans usually involve a peculiar mix of cash-and-kindtransactions. Under the circumstances, the best approach is probably the onetaken here-to sum the lending agencies t final cost of providing credit tofarmers and to compare that against the interest rates charged.

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2.37 The credit subsidy program has also been inequitable because itreached very few smallholders. The large, richer farmers who receive most ofthe formal loans probably could have borrowed anyway at unsubsidized rates.In addition, most of it is channelled toward non-crop activities that couldhave attracted private capital, and credit is mainly used to purchase inputswhich are also heavily subsidized.

2.38 Agricultural credit subsidies are quite substantial but appear to beinefficient and inequitable. The lending rate should be raised to coveradministrative and procurement costs and to allow for a profit margin so thatthe financial institutions involved can become financially viable. This meansin principle that the lending rate should also cover defaults, which representthe major cost item. However, where defaults are high what is needed isinstitutional changes to bring them down rather than extremely high (real)interest rates. Still, interest rates should also be positive when correctedfor inflation. Specific recommendations on interest rates and other issueswould need to await the outcome of the National Agricultural Credit Study,which has been initiated. It is hoped that the study will find innovativetechniques for dealing with the problem of most small farmers' lack ofcollateral, which has its origin in the underdevelopment of the lead market.

Labor Cost of Production

2.39 The most important input into agricultural production in Nigeria isnot subsidized, however, and that is labor. Indeed, labor costs increased ata rate of 20.7 percent a year during 1970-82, as compared to the correspondingconsumer price index rate, which was only 17.5 percent, indicating that ruralwages rose in real terms. In addition, it seems that labor supply toagriculture shra-nk, with the spread of primary education and the ability ofyoung men to seek more lucrative jobs in the towns. Off-farm work, nowavailable year-round, provides as much income as the average farmer earns fromcrop sales, which means that family labor now values its time at a highercost. The wage burden is made even heavier by the high degree of laborintensity (over 100 worker-days per hectare) in the average farm unit, withyam farming being about twice as labor-intensive as cash crops.

2.40 The appreciating naira and increasing labor costs are the chiefreasons that Nigeria's agricultural costs appear to have risen in relation toworld agricultural prices, although efficiency gains elsewhere have also beena factor (e.g. in world rice production). In the 1960s, Nigeria's pricestructure was more or less at parity with world market conditions. By 1979,howe-ver, domestic-to-international price ratios (at the official exchangerate) ranged from 1.2 in the case of groundnuts to 2.9 for rice paddy; in1981-82, the ratio was 2.3 in the case of maize. Information on other cropsis included in the Table 2.2.

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Table 2.2: Ratio of Domestic to International Prices for 1979-82

1979 1981/82Maize 1.5 - 1.7 2.3Millet 1.5 n.a.Rice millet n.a. 1.7Rice paddy 2.9 n.a.Sorghum 1.2 - 1.5 2.10Groundnut 1.2 - 1.6 1.16

2.41 The rising trend in rural wages during the oil boom years has causeda shift in Nigeria's comparative advautage. Preliminary evidence supports thewidespread contention of field experts that farmers were caught in a price-cost squeeze in the 1970s, owing to depressed output prices and rising laborcosts. However, as a result of the oil recession, real wages are now fallingand reverse migration is taking place: while it is not yet clear by how much,and how the agricultural sector is responding, the likely scenario for themedium term is one in which real wages will be much lower than during the197 0's.

2.42 Policy Implications. The rise in rural labor costs, combined withdepressed output prices has been a disiucentive to expanding agriculturalproduction. Government intervention in rural wages would be unwise, butminimum wage policy that ensures that real wages in urban areas do not riseabove productivity would be helpful. Another way of releasing the labor costconstraint is through improvements in agricultural productivity. Thus,policies that promote appropriately scaled mechanizationl/ and other labor-saving techniques catering to the needs of small- and medium-scale farmerswould have positive results. In the absence of labor-saving of some sort, itis likely that yams, cotton and groundnuts will decline in their share oftotal production owing to their high labor demands.

Conclusions and Recommendations

2.43 While the Government has made an attempt to compensate for theadverse movements in agriculture's terms of trade by introducing or raisinginput subsidies, in many cases these have often been at too high a cost,either because they have not been economically justified, or because they didnot reach the intended beneficiaries. As argued above, it would be preferableto rely on tariff and trade policy to influence the terms of trade and tominimise the use of input subsidies. If the recommendations on trade andtariff policy made above are followed, then the economic subsidy on importedinputs would be largely removed. The following recommendations on specificsubsidies refer to financial subsidies:

1/ For example, rental of small and medium-sized tractors by the privatesector for land preparation could reduce labor requirements in a seasonwhen the timeliness of field preparation can be important.

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Ci) Fertilizers: The financial subsidy on fertilizer should bephased out.l/ In the case where fertilizer use is clearlyeconomically justified (maize), the farmers do not appear toneed encouragement to use it. On other crops, where theeconomic benefits from its use do not clearly outweigh theeconomic costs, there is no economic justification for asubsidy. Since the exchange rate is seriously overvalued, asubstantial economic subsidy would remain even after thefinancial subsidy is removed. Thus, while the economic subsidyremains large, the phasing out of the financial subsidy shouldbe carried out as rapidly as possible. However, this shouldnot be done all at once, so that farmers have time to adjust tothe new relative prices. At the same time, emphasis should begiven to developing new, more responsive varieties and moreappropriate fertilizer mixes. Finally, a study should beundertaken to assess the economic benefits of fertilizer usefor different crops, fertilizer mixes, and under differentagroclimatic zones.

(ii) Agricultural mechanization: Subsidies to large-scalemechanization of bush-clearing and land-preparation should beremoved. These subsidies currently apply to the sale andrental of agricultural machinery, to the provision of bush-clearing services, and to the duty-free status of agriculturalmachinery. L/. This argument is based on the absence of evidencethat the economic benefits of large-scale mechanizationoutweigh the economic costs. Mounting evidence of the negativeimpact of large-scale mechanization on the soil (througherosion, compaction, and lower nutrient content) is animportant factor on the cost side. Once the agriculturalsector becomes more profitable, private agents will invest inthese technologies of their own accord, if they areprofitable. Efforts should instead be directed to identifyingtechnologies to raise labor productivity, which are notexcessively costly, and which do not have negative side-effects, particularly on the soil. Support (through researchcredit and support services) could then be provided on atemporary basis to encourage farmers to adopt the newtechnology.

(iii) Pesticides: Subsidies are not needed on farm-specificinsecticides (such as seed-dressings), which are already widelyadopted at unsubsidised prices. They are justified wherefarmers are still learning to use them (e.g. herbicides inmixed cropping), or where area-wide epidemics or infestations(such as tstetse fly infestation) are involved. In this lattercase, their social benefits exceed a farmer's direct benefits,

1/ As noted in para 2.06, above, the economic subsidies (except onfuel) would be largely removed if the recommendations on trade and tariffpolicy made in this report are followed.

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and thus individual farmers are not in a position to deal withsuch problems through private pest control arrangements.

(iv) Inproved Seeds: Where farmers are still learning to use aniuproved seed, and are not adopting it fast enough because oftheir excessive risk aversion (from society's point of view),then a tenporary subsidy is warranted.

2.44 Credit: Agricultural credit subsidies are quite substantial butappear to be inefficient and inequitable. The lending rate should be raisedto cover administrative and procurement costs and to allow for a profit marginso that the financial institutions involved can become financially viable.This means in principle that the lending rate should also cover defaults,which represent the major cost item. However, where defaults are high what isneeded is institutional changes to bring them down rather than extremely high(real) interest rates. Still, interest rates should also be positive whencorrected for inflation. Specific recommendatious on interest rates and otherissues would need to await the outcome of the National Agricultural CreditStudy, which has been initiated. It is hoped that the study will findinnovative techniques for dealing with the problem of most small farmers' lackof collateral, which has its origin in the underdevelopment of the landmarket.

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Chapter 3

OUTPUT PRICES: INCENTIVES AND DISINCENTIVES

3.01 The current price-fixing system for agricultural products in Nigeriahas many flaws, not least of which is that it does not provide effectiveincentives to producers. The Commodity Boards that provide the price supportsare facing mounting debts with the Central Bank, which is increasinglyreluctant to support the higher producer prices necessary to raiseagricultural incentives.

3.02 Exports of agricultural produce used to be heavily taxed throughexport duties and the produce purchase/sales tax.l/ In the 1960s, the averagetax burden on cocoa, palm kernels, groundnuts, and cotton ranged between 15and 30 percent, and export taxation accounted for about 7 percent ofGovernment revenue as late as 1970. But agricultural export taxation wasphased out following the oil boom of 1973-74 and after the restructuring ofthe marketing boards in 1977. Official Producer Prices have risen above worldprices (at the official exchange rate), and agricultural exports are nowexplicitly or implicitly subsidized. Nonetheless, from the point of view ofthe individual farmer, the support prices do not provide adequate productionincentives.

3.03 In the case of food staples, the picture is different but the neteffect is the same as far as production incentives are concerned. Until1982/83, the prices of grains and oils were under pressure from competingagricultural imports. The Grains Marketing Board had neither the resourcesnor the orientation to invervene in the market on a scale sufficient to raiseProducer Prices significantly. And the Board may have been under pressure tokeep prices low as a kind of food subsidy to urban consumers. While, as notedabove, the situation has been reversed since 1982/83 (and agricultural pricesare now very high) because of data availability, this chapter is confined tothe situation until 1982/83. The lessons drawn are thus particularlyapplicable to periods of oil boom and to periods when the exchange rate isovervalued, and restrictions on imports are minimal.

TCPP and the Producer Pricing Mechanism

3.04 Several different Government bodies participate in fixing pricesupports. Since 1977, the leading institution has been the TechnicalCommittee on Producer Prices (TCPP), which includes representatives of the sixCommodity Boards (for cocoa, cotton, rubber, groundnuts, and palm oil andkernel, and grains). The latter are responsible for either buying commoditiesfrom the producer or processor and marketing them to domestic or overseasbuyers, or supporting prices of domestically traded crops by occasionalpurchase programs. TCPP membership also includes representatives from the

1/ See IBRD, Nigeria - Options for Long-Term Development, the JohnsHopkins University Press, 1974, p. 170. See also IBRD, Nigeria: Non-OilExport Prospects, Report No. 3771-UNI, 1982, p. 6.

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Central Bank (CBN), the Federal Ministry of Commerce and Industry, the Prices,Productivity and Incomes Board of the Office of the Head of State, and theMinistry of National Planning, along with technical and administrativeofficials of the Federal Ministry of Agriculture (FMA). TCPP's Chairman isthe Permanent Secretary of the Federal Ministry of Finance and iLs secretariatis provided by the Agricultural Finance Department of the CBN.

3.05 The TCPP meets between March and September of each year to considerwhat prices should be paid to producers of the major commodities by LicensedBuying Agents (LBAs) from the appropriate Commodity Board. Its deliberationsare based on analyses and proposals from each Board. Once approved by thePrice Fixing Authority, which is the head of state, Producer Prices areannounced, usually in advance of the planting season. In the case of the cashcrops, which can be exported only by the Commodity Boards, the Producer Price4iS theoretically set at a level to give the farmer a fair return. In the caseof food staples, where the Grains Board is conceived of only as a buyer oflast resort, the Guaranteed Minimum Price (GNP) is supposed to represent afloor which would assist farmers only under unexpectedly adverse marKetingconditions. At present, it is apparent that two sides have emerged on allProducer Price questions in the TCPP. The Commodity Boards and FMA aregenerally proponents of higher prices, while the Central Bank and theMinistries of Finance and National Planning exert downward pressure.

3.06 The TCPP advises not only on the level of Producer Prices, but alsoon the size of allowances for administrative and other overheads of the buyingprogram, and on selling prices in domestic and international markets. Thelargest items on the list of allowances are the "buying allowance" (thecommission paid to the Licensed Buying Agent), the "transportation cost," and,for some crops, "processing fees." On average, these allowances add 25percent to the Producer Price, while administrative and established expensesadd a further 3 percent. The full cost to the Board for crop purchases iscalled the "takeover price." Table 3.1 shows the takeover allowances inrelation to Producer Price for selected commodities in 1982-83.

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Table 3.1: TlER-OVI AUNJMES, 1982/83

(Naira per metric ton)

Buying Trans- Mum. TakeoverAllcw- port + Proces- Producer Allowaocesaace cost Estab. sing Otber Total Price as % of PP

Cocoa (bean) 68 40 17 (200) 76 201 1,300 15

lbber

lXUp 44 40 29 88 201 700 29

cruab rsal) 44 40 29 88 201 1,200 17

Palm ]Ymel 25 29 16 (65) 26 96 230 42

PalmIl (spo) 35 33 15 50 133 495 27

G*oits (shelled) 30 54 2D 43 147 450 33

Cotton (seed cotton) 50 64 10 (51) 49 173 510 34

13ize 25 9 4 7 45 290 16

pady 29 10 5 10 54 345 16

ad.led 29 10 5 10 54 59 9

() Fes allowed, but larely inoperative because crop is not processed. 7hey are excluied from total.

3.07 Funds for the annual buying program are loaned by the Central Bank to eachBoard. The size of each loan is determined in advance of the season by multiplyingthe agreed takeover price by the 'Board's estimate of total purchases. That amountis deposited in tranches by CBN to the Board's account. Earnings from exports anddomestic sales are collected by CBN in repayment. Losses, which are implicit whenTCPP sets Producer Prices higher than world market prices, culmlate as debts of theBoards to the CBN. Despite the expectation of losses, the annual trading deficits

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are not anticipated in the Federal budget. Instead, CBN is required simply tocreate new money. In effect, the Boards are instructed to operate at a loss--i.e.,to subsidize producers--but the losses are not covered officially.

3.08 This system has set up an ongoing conflict between the Boards and CBN. TheBoards argue that their mounting debt erodes whatever credibility they may havestarted with vis-a-vis the CBN, which is then reluctant to accept theirrecommendations on prices or to lend them money for production-relatedrehabilitation and development activities. Since their operating revenue must besecured from allowances related to volume, without reference to economies of scale,the Boards do well when turnover is expanding and poorly when it is falling. TheCBN, on the other hand, feels that the allowances that support the Boards' expensesare generous to the point of encouraging waste. It cites the large field staffsretained by the Boards (despite the steep drop in trading volume) and the built-inincentive to maximize turnover regardless of Government policy on commodity trade.

3.09 The TCPP system has several weaknesses in addition to the one justmentioned. The most basic is that, despite its name, the Committee'srecommendations are not related to any "technical" analysis of producer costs. Inpart, this is because the TCPP almost always settles on a Producer Price lower thanthe one recommended by the relevant Board, leading the Boards to conclude that thesystem is being used less to guarantee a minimum profitability to the farmers thanto promote other objectives of public policy, such as food subsidies for urbanconsumers.

3.10 Another weakness in the present system is that the TCPP does notsystematically inform itself about projected levels of agricultural imports. Theanalysis of grain prices, and the determination of quantitative targets for eachbuying season, are not coordinated with Ministry of Commerce decisions on grainimport levels, despite the Ministry's representation on the TCPP. Authoritiesresponsible for setting import quotas on rice, for example, do not always knowwhether these quotas are consistent with incentives built into the Producer Price.

Agricultural Ouitput Subsidies via the Producer Price System

3.11 As of 1982/83, financial subsidies to producers via the Producer Pricesystem were substantial, although they did not adequately compensate producers forthe bias against them created by the overvalued exchange rate. The tables in thissection offer various ways of measuring them.

3.12 Subsidies Per Ton. Table 3.2 permits a comparison between world prices andtotal buying costs of the various Commodity Boards for the 1982/83 buying season.The difference between Board costs and the world price represents a financialsubsidy by the Government to the agricultural sector, although not an economic one,as the effect of the overvalued exchange rate was dominant. Palm oil and groundnutsare included even though they were not traded, to show what the deficit would havebeen if the Boards had been active; since these crops are traded in the markets athigher prices, the implied subsidy to the farmer vis-a-vis the world price is largerthan that shown.

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Tale 3.2: SlWSID! AND Pl:l[TION, ACTUAL O1R WLID AS FROIVE BY COMDITYBOB PIES; FOR 1982/83(Naira per setrfc ton)

SubsidyProducer M&e-Oyex Trasport Total Border ProtectionPrice Allowics Price Fees 1/ Costs Prie 5/ N Z PP

,Kor cropsoDcoa (been) 1,300 201 1,501 44 1,545 1,338 207 16Robber 1,200 201 1,401 39 1,440 745 695 58Palm Kerel 230 96 326 39 365 186 179 78

Palm Oil 495 2/ 133 628 39 589 347 242 2/ 49Qaxs (selled) 4502/ 147 597 140 457 270 187 I' 42Cotton (seed cotton) 510 224 734 143 3/ 691 448 3/ 243 45m-z 290 4/ 35 325 120 205 114 91 31m.ce (nlled) 596 55 651 50 601 276 325 54

/ Added for export cros, subtracted for import crops.2 Proder Pdces below market price and iVoperative. Actal proectio is higher

tman shan3/ Seed cotton equivalent. 1 MT seed cotton yields 2 bal cotton lint at .181 MT each.7Q As increased from 210.S/ F0 for eports, CIF for iqprts.

3.13 A comparison among crops shows substantial differences in the relative sizeof the per-ton subsidy. Where the Producer Price is close to the world price, thesubsidy is lowest, although allowances and other costs may mean that a commodity iseffectively subsidized even if its Producer Price, as for cocoa, is lower than theworld price. On the basis of total costs per ton, in 1982 cocoa carried the lowestsubsidy, equivalent to 16 percent of the Producer Price. Palm kernel, less than afourth of which is exported, carried the highest subsidy, equivalent to 78 percentof the Producer Prices. In most cases, the protection afforded by the financialsubsidy would not have been sufficient to compensate for the overvalued exchangerate.

3.14 Levels of Protection. Table 3.3 compares the subsidy (tax) situation in1983 with that in 1978 and that projected for 1985 (Producer prices in 1984 remainedat 1983 levels with the exception of cocoa (N1,400 per metric ton) and cotton (N560per metric ton)). The ratio shown is the Producer Price as a percentage of theborder price ('port paritv ) at the official exchange rate. This table ignoresallowances and other transport costs and mixes comodities of different tradingpositions-three that are exported (rubber, cocoa and kernel), four that areimported (cotton, palm oil, maize and rice), and one that does not compete in

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official overseas trade but is smuggled to neighboring countries (groundnuts). Asthe table indicates, the trading position changed dramatically between 1978 and1983. In 1978, the Producer Price was well below the world price for all cropsexcept the grains; the Boards were making profits on palm kernel and cocoa and justabout covering themselves on rubber. Five years later, Producer Prices were all at,or above, world prices (at the official exchange rate) and the grains were even moreheavily protected. Cocoa was a net foreign exchange earner for Nigeria until 1980,but the decline in the traded price of cocoa on Western European markets that beganin 1977 has pushed that commodity into a deficit position. Although cocoa pricesrecovered somewhat in 1983, the Bank's commodity projections indicate that they arelikely to slip once again after 1985.

Table 3.3: RATIO OF PRODUCER PRICE TO PORT PARITY PRICE

1978 1983 1985 1/

E portsCocoa bean) .48 .97 .97Rubber (crumb, RSSI) .85 1.61 1.25Palm kernel (Nig. ave.) .66 1.24 .87

ImportsPalm oil (Malay 5%) .82 1.43 1.04Cotton (seed cotton) 2/ .92 1.14 .98Maize (Nig/US yellow) 1.63 2.54 2.47Rice (Milled) 1.40 2.16 2.08

(Groundnuts (Nig. shelled))3/ (.64) (1.67) (1.07)

Average (for all crops excluding grains) .73 1.34 1.03

1/ Assumes same Producer Price as 1982/832/ Using Cotton lint equivalents (ratio 2.78)3/ Not officially traded

3.15 The 1983 position was, however, atypical. Prices of most internationallytraded primary food products and agricultural raw materials (including Nigeria'sagricultural imports) were at historic lows because of the world recession, whilelocal costs in Nigeria had been rising rapidly (see Chapter 2). Figures for 1985 inTable 3.3 show that, if domestic prices remain the same, the level of support can beexpected to decline in the next few years, though it will remain at relatively highlevels.

3.16 Table 3.3 also presents the unweighted average support (actual or implied)for the six commodities other than grain. It shows that, on average, the Boardswere paying producers about 25 percent less than what the commodities were worth in

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international trade in 1978, but a third more in 1983. Assuming that the relativevalues of these commodities appreciate from 1983 to 1985 in line with the Bank'sforecasts (of December 1982, with some adjustments), and assuming that the realeffective exchange rate of the naira does not change, then by 1985 producers will bepaid about what the world market is paying for the six commodities in question. TheBoards will still be losing money, however, because of the allowances and othercosts heaped on top of the Producer Price. Furthermore, these statistics are notmeasures of net effective protection, since they do not look at economic costs.

3.17 Trading Deficits. Table 3.4 gives a rough indication of the size of thedeficit for 1983 for the three principal export crops as well as cotton and maize.The table is a composite of data from two years, applying the nominal subsidy permetr!c ton estimated for 1983 for each crop to the actual figures for quantitypurchased in 1982.

Table 3.4: COMMODITY BOARD TRADING DEFICITS, 1982-83

PalmCocoa Rubber Kernel Cotton Maize

Trading Costs * (N/MT-1983) 1,545 1,440 365 691 205Less: CIF/FOB Parity Price (N/MT-1983) 1,338 745 186 448 114Equals: Price Subsidy (N/MT-1983) 207 695 179 243 91Quantity Sold ('000 MT-1982) 175 30 182 41 150Gross Deficit (million N) 36 21 33 10 14

* Take-over Price plus or minus Transport to Port, Port fees, etc.

3.18 The total deficit estimate for 1983 was N114 million, or NilO million ifcertain processing gains are assumed.l/ The big losers were cocoa and kernel. Eachwas running a deficit of about N35 million, which can be compared with profits ofabout N130 million and N166 million, respectively, in 1960, as expressed in terms ofthe 1982 naira.

3.19 Table 3.4 does not measure all the subsidy provided by the Government tothe producers, since there are substantial input subsidies involved (see Chapter2). The expenses of the rehabilitation and other production programs are alsoexcluded. Nonetheless, the table does underline the fact that the result of settingProducer Prices higher than world prices is a substantial trading deficit, which

11 Table 3.4 does not include sales by the Palm Produce and CottonBoards of prepared products. Two-thirds of the kernels sold were firstcrushed and prepared as kernel oil, cake, and pellets at a fee for theBoard and sold by it on the export and domestic markets. We do not knowif that processing enterprise was profitable for the Board; if so, itwould have recovered some of the 133 million loss shown in the table.Also, the Cotton Board recovered N3 million (figure available only for1981) from the sale of cotton seed to seed and feed mills.

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represents a financial subsidy of output prices. Ir. economic terms, however, theeffect of the overvalued exchange rate by and large outweighed the effects of thesubsidies.

Producer Prices as Production Incentives

3.20 As pointed out above, although Nigeria's output subsidies are substantial,they nonetheless do not, from the point of view of the individual farmer, providevery much incer.tive to increase production. The principal reasons for this are theexchange rate overvaluation and the price-cost squeeze brought on by the rising costof labor. However, there are several additional reasons.

3.21 First, the farmer does not always receive what the Commodity Board reckonedto be his fair share of the Producer Price. Indeed, an earlier Bank study foundthat, for some crops, "the farmer is typically cheated out of 40 percent of thegazetted price by the Licensed Buying Agent.-l/ The reasons for this are not known(it is possible that at least part of the explanation lies in inadequate marginsallowed to the LBA's.) In general, the higher the stage of processing before theBoard takeover, the weaker is the Board's control over farmgate prices. The LBAsare commissioned to buy some crops from the farmers raw (seed cotton) or nearly raw(s'hucked maize, dried cocoa bean, winnowed paddy); in these cases, the ProducerPrice refers to the commodity the farmer himself sells. For other crops, however,the LBAs are commissioned to buy the crop (rubber, palm oil, groundnuts) only afterone or more stages of processing; in those cases, the Producer Price refers notnecessarily to the farmer but to the processor, who may or may not be the farmer 2/,since oil extraction and shelling are labor-intensive activities which attract fewerand fewer rural households. The Palm Produce Board acknowledges that oil-palmfarmers are often cheated by their LBAs over the price of kernel; a recent studyshowed that no farmer in the sample received more than 80 percent of the ProducerPrice. 1o correct the situation, the Palm Produce Board plans to initiate a directpurchasing scheme to compete with the LBAs. Other boards are also establishingtheir own buying centers in order (through competition) to raise farmgate prices towhat they were intended to be.

3.22 Second, some of the Commodity Boards have effectively circumvented themarket mecnanism, so that for cotton, cocoa, rubber and palm kernel the ProducerPrice effectively determines what the farmer gets. For cocoa and kernel, theCommodity Boards have a monopoly on exports. Since almost all kernel and cocoa areexported, there is no other source of domestic demand to bid up the price tofarmers. In the case of rubber, where 40 percent is bought by local tiremanufacturers, occasional scarcities force the manufacturers to bid up the pricetemporarily; but stiff competition from cheap imported tires ensures that themanufacturers cannot pay high prices for very long. Seed cotton prices are alsoheld down to the Producer Price, but for a different reason. In this case, theCotton Board buys all domestic seed cotton at the Producer Price, has it ginnedunder contract by thirteen local ginneries, and sells the lint to textile factoriesat the import price of lint, which is kept low by the Government in order to promotethe development of the domestic textile industry, by far the largest industrial

1/ P. Kilby, A Review of Prospects and Problems in Agro-AlliedIndustries, draft report, November 3, 1980, p. 31.

21 Although in the case of oil-palm, the women often crack the kernel.

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employer in the country. Domestic lint filled 35 percent of the industry's needs in1982, but the Cotton Board appears mainly interested in subsidizing themanufacturers, not the producers.

3.23 Third, in the case of food staples, support prices offer producers littleincentive in comparison with market opportunities. Until 1980, when increasedProducer Prices reversed the trend somewhat, the relative prices of traded and non-traded crops tended to change in favor of the latter. By 1982, except forgroundnuts and palm oils, the real prices of non-traded staples were well abovetheir 1976 levels. Data collected by the Bank mission shows that support prices onstaples average only 40-60 percent of yearly market prices (the exceptions beingsoybeans, for which the percentage is less than 20, and rice paddy, whose supportprice averages more than 70 percent of market price). Except for rice, supportprices do not seem adequate even to cover farmgate prices; the latter have ingeneral grown more slowly than market prices (see Table 3.5 below).

Table 3.5: AVERAGE ANNUAL GROWTH RATES OF FARMGATE AND MARKET PRICES1977-81

Farmgate Price Market Price(7.) (X)T

Beans 10 9Maize 4 6Millet 8 10Rice (white) 10 11Sorghum 7 4

3.24 In fairness, the GMP support price was never intended to be more than afloor price.l/ The buying season for grains is timed to cover the months during andjust after the harvest, when large deliveries of surpluses might expose farmers tothe threat of a steep drop in prices. The other major commodities ostensiblyhandled by the Boards--palm oil, groundnuts, maize and rice-trade within completelydifferent regimes. These are the crops that have had to absorb the assault byimported oils and grains. Local market prices have reflected the competition withimports--depressed when imports flowed in freely, soaring when imports wererestricted. At present, embargoes have pushed the price of oils well above ProducerPrices.


3.25 The Price Mechanism and Trade Policy. Commodity board prices and policieshave not provided adequate incentives for producers. For support prices to be aneffective instrument in reviving this sector, reforms require that: (i) the effectsof the exchange rate distortion on the sector should be reversed, preferably by anadequate devaluation, or else by a combination of devaluation, tariffs/subsidies and

1/ The Strategic Grain Reserve, also operated by the Grains Board, isintended to provide buffer stock and to stablilize prices; grain reservepurchases are generally made at market prices, which are higher thanGMPs, but the quantities involved do not generally affect the market.

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import licences; (ii) prices should be announced prior to planting decisions; and(iii) they should be implemented through an adequate network of collection pointsand transportation facilities.

3.26 One of the difficulties of such an operation is to make adequate forecastsof the market price (and how it might be influenced by the general level ofinflation) six months in advance. Another problem is the large capital expenditurerequired for the collection, storage, and distribution network. Finally, becauseurban populations usually exercise stronger political influence than do ruralpopulations, most output pricing policies in developing countries work to benefitconsumers rather than producers. Nigeria has been no exception.

3.27 Given these considerations, the most realistic instrument for giving priceincentives to producers is trade policy (see Chapter 4). Adjusting tariffs andsubsidies is administratively simpler and less costly than operating a marketingboard and collection system; however, for the export crops, the Boards would stillneed to be used as a channel for the proposed export subsidies. It is a good signthat the Nigerian Government has been moving toward greater emphasis on trade policyrecently.

3.28 The Role of the TCPP. In the context of an increased emphasis on tradepolicy, the main role of the TCPP should be to assess the implications of variouspolicy changes in trade, import tariffs, export subsidies, and prices onagricultural production. This requires strengthening the analytical unitssupporting the TCPP and ensuring their unbiased judgment and adequate finance. Inorder to emphasize the TCPP's stronger analytical base and broader role, it shouldbe renamed the Agricultural Prices and Tariffs Group (APTG). And, sinceagricultural trade policy cannot be set in isolation from policy in related areas ofthe economy--in particular, the agro-processing industries-consideration should begiven to coordinating the work of the TCPP (APTG) with a similar policy analysisunit for industry. (The latter was suggested in a Bank report on industrialincentives and has already been discussed with the Government.)

3.29 Expanding the TCPP's analytical role would make the need for a stronginformation base even more crucial than it already is. The Federal Department ofAgriculture and Rural Development has recently tried to establish a more respectablebasis for the Producer Price review by recruiting university faculties to carry outstudies of farm costs. The first such study, on grain crops, was conducted in 1981by the University of lbadan, and the FDA recently received three similar universitystudies of tree crops. In addition, a well-developed marketing information systemis required to make the pricing mechanism more meaningful. The effort by theGovernment to collect and disseminate information about market prices in some partsof the country, which began in 1980, needs to be intensified.

3.30 Emphasis should be given to linking Producer Prices with world prices, andnot just producer costs, although some regard to the latter cannot be avoided,especially during the transitional phase. This does not mean equating ProducerPrices with world prices at an over-valued exchange rate (such as prevails now), butrather at either an appropriate exchange rate, or at a less satisfactory exchangerate supplemented by import tariffs and export subsidies. One of the main purposesof this would be to achieve the same relative prices between crops as prevail in theworld market.

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3.31 Commodity Boards. As regards the present Commodity Boards, a thoroughstudy should be carried out, with particular reference to the grains and groundnutboards. The Cotton Board system also needs a special review, looking in particularat the grinning arrangements. It is not obvious that these boards serve a usefulpurpose, and it is clear that they have not provided renumerative producerincentives. The tree-crop marketing boards should be retained and used, as atpresent, as instruments for export subsidy, while reliance on import tariffs andexport subsidies remains. It also seems imperative that the Boards' tradingdeficits be entered in the Budget, and an offsetting transfer of funds be providedto the Central Bank. To continue to finance the deficits by extraordinary creditcreation-credit that is known in advance to have a large built-in defaultcomponent-compels the Central Bank to argue against needed Producer Priceincreases.

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Chapter 4

TRADE AND EXCHANGE RATE POLICIES:INCENTIVES, DISINCENTIVES AND PROPOSALS FOR REFORM 1/

Past and Present Trade and Exchange Rate Policies and Their Effects

4.01 Part of the 'problem' for Nigerian agriculture--along with industry--is that Nigeria suddenly became richer: wages rose, and the exchange rateappreciated, so that resources were drawn away from the tradeables sectorsinto the non-tradeables sectors. This in itself is not so much a 'problem" asa blessing-indeed, when a country becomes richer, it is to be expected thatits comparative advantage lies in shifting out of the more labor-intensiveactivities. However when set in the longer-term perspective of the projecteddecline in oil export revenues, it can become a problem if the 'short-run'exchange rate is allowed to depress the tradeable sectors for too long, sinceinsticutions and human capital take time to build up again.

4.02 The oil boom lasted until about 1980. Then came Nigeria's second setof problems, which could have solved the first set of problems, but failed 'todo so. Once oil revenues started to decline (in 1981), the exchange rate,which had appreciated by 80 percent in real terms between 1973 and 1980, wasnot allowed to depreciate in line with the fall in exports; instead, itcontinued to appreciate in real terms (e.g. by 14 percent in 1983). Thuscheap' imports flooded in, and depressed domestic prices, while exportsbecame uncompetitive in world markets. The fact that the exchange rate wasnow over-valued, even in a 'short-run" sense added to the depressing effectsof the earlier phase of the "oil syndrome". These factors would have been atleast partly responsible for the stagnation of the sector during the lastdecade.

4.03 Since 1981/82, however, trade restrictions have increasinglycounteracted these effects, by providing protection for producers. Indeed,since 1983, domestic agricultural prices have risen to very high levels. Thetrends in agricultural incentives from 1979 to 1982 are shown in a study ofnominal, effective and net effective rates of protection (NERPs) (see Annex V)which found that quantitative controls influenced prices more than tariffs,especially as large quantities of food imports entered duty-free on Governmentaccount. Even when tariffs did affect the price, they were spread over such awide range that they provided rather inconsistent incentives across crops.The study found that for most crops, for most of the period 1979-82, NERPs(reflecting an exchange rate distortion of 35 percent) have been significantlynegative, although following a rising trend towards more positive rates since1981/82. While since 1980, incentives have improved for producers of maize-

1/ This chapter summarizes and expands on Annex V, where thequantitative analysis is presented.

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and since 1981, cocoa--producers of rice, groundnuts, cotton and rubber appearto have received significant disincentives during much of the period.1/ Inaddition, to the extent that the exchange rate has been overvalued by morethan 35 percent in recent years, all these estimates of NERPs would beoverstated. Further, while wheat is hardly grown domestically, thesubstitution effects of the low-duty imports on the demand for other home-grown grains has also provided a serious disincentive. There is only onemajor exception to the above: it is clear that policies since 1979 haveconsistently provided significant incentives to producers of sorghum.

4.04 Thus, it was found that, until 1981/82, when import restrictions wereimposed, (and with the exception of sorghum producers who were implicitlysubsidized through control on imports throughout the period), Nigerianproducers of the major crops were subsidizing consumers. After the impositionof QRs, however, the reverse began to be the case. However, a large part ofthe apparent -producer surplus was necessary to compensate producers for theexchange rate distortion that favored consumers.

4.05 Several commodities are particularly affected by the Government'sheavy and unsystematic use of quantitative restrictions (QRs). Rice, forexample, went from being almost freely imported in 1978 to being banned, thenput under license, then banned again, etc., which resulted in dramatic changesin the domestic price of rice. Such price instability tends to reduce thevalue of incentives to producers as well as cause considerable disruption toconsumers and traders who market domestic supplies. The Government's policieswith respect to wheat illustrate a further drawback associated with the use ofQRs in conjunction with an overvalued exchange rate and low tariffs. Importlicenses for wheat are granted to millers, who may import the grain verycheaply. The low tariff on wheat (O percent vs. 50 and 55 percent on maizeand rice in 1984/85 respectively) only encourages consumers to substitute animported product for domestic products. The growing demand for wheat productsin Nigeria has meant that wheat import licenses command high economic rents,2/and liberal import license policies have led to considerable investment in themilling and baking industries in order to process the imported wheat andcapture these rents.

1/ While other factors also influence growth in output, it is worthnoting that patterns of domestic production are generally in line withthe estimates of relative net effective protection.

2/ It is difficult to determine the extent of such rents, largelybecause the price of flour is subject to control, although it should benoted that millers have unilaterally increased the price of flour in thepast. Excess demand for flour by bakers has led to an informal systembetween millers and bakers of allocation by quota. Therefore, baking,which comprises another rapidly expanding industry, also receives a shareof the economic rents associated with the importation of wheat.

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4.06 In sum, the main problems created for the agricultural sector byNigeria's trade and exchange rate policies of the last decade, have been:

(a) the exchange rate has been overvalued, which has had an overalldepressing effect on the sector, and caused a bias in favor ofnon-traded crops compared with traded ones;

(b) import policy has been erratic, often permitting a flood ofcheap imports to depress local prices;

(c) tariff rates differ widely across crops; this, combined with(b), causes great inconsistencies across the sector.

4.07 These policies have been associated with considerable costs in termsof economic efficiency within the agricultural sector. The partial reversalof Government intervention, mainly through trade policies, that took placefrom 1981/82 has significantly raised prices and has apparently contributed toincreases in the production of many crops, such as maize, sorghum, cassava,millet and rice, at the expense of other crops, such as cotton, cocoa, yam,groundnuts and rubber.

Proposals for Reforms

4.08 It might be argued that now that domestic prices of importedagricultural products and their substitutes are very high, the problems of thesector are solved. However, three major problems remain. The first is thatexport crops are still discriminated against, since the existing producersubsidies are not adequate to compensate producers for their loss ofcompetitiveness on world markets due to the overvalued exchange rate. Thesecond is that ther is currently no systematic basis for the determination ofrelative prices, both between crops and between the agricultural sector andthe rest of the economy; instead, these are currently determined by thepattern of QR's, which are not linked to the pattern of world prices. Third,and relatedly, the other drawback of QR's, as opposed to tariffs, is thattraders, rather than the Government, collect the -rents that accrue becauseof the differential between world and domestic prices; these could be used bythe Government to finance export subsidies.

4.09 The most efficient and effective way of dealing with the aboveproblems, particularly as most of them are also applicable to the problems ofthe industrial sector, is to change the relative price of tradeable and non-tradeable goods-in other words, to devalue. A devaluation would redress therelative incentives between the production of export crops and importsubstitutes; it would ensure that agriculture and industry are put in thesame competitive position vis-&-vis the world economy and that relative worldprices of different crops are reflected in the domestic economy; and it wouldcause the disappearance of the "rents" that accrue arbitrarily to importers,because of the differential between world and domestic prices-these wouldeffectively be transferred to exporters, through the higher prices they would

- 39 -

secure for their exports. This conclusion is supported by macro-economicanalysis and by analysis of the industrial sectorl/.

4.10 However, to the extent that it is not feasible to undertake asufficient devaluation initially, then a range of interim measures could beconsidered, which would also result in the trade-based incentives system beingredressed. A combination of some measure of devaluation, combined withtariffs and export subsidies could be considered, and also adopted for theindustrial sector. If this approach is adopted, the tariff levels requiredwould range from 100-130 2/percent in the case of a devaluation of the nairato parity with the dollar by June 1985; and export subsidies should beprovided at a rate equivalent to the tariffs on imports. Effective protectionshould rapidly be made as uniform as possible across crops, so that farmerscan concentrate their efforts where growth possibilities are highest;temporary exceptions can be made only in cases where it can be demonstratedthat some extra protection is needed on a temporary basis to encourage farmersto adopt a new and more profitable crop which has a high growth potential.Even though, given Nigeria's current stabilization problems, the Governmentwill probably have to continue with some form of foreign exchange budgetingfor a while, which would entail the continued use of import licences, it isdesirable to begin the process of phasing them out as soon as possible.

4.11 Import licences could be eliminated gradually as the foreign exchangeconstraint eases, and later on, tariffs could be reduced as the exchange ratefalls into line. There is, however, a trade-off between having a flexiblesystem, on the one hand, and providing continuity and certainty of incentivesto farmers, on the other. Thus, it is recommended that sudden changes inimport licences or tariffs be avoided and that both tariffs and planned importlicences be announced well in advance of each planting season.

4.12 Implicit in the above recommendations is the view that neithertradeable sector (agriculture or industry) should receive more favorabletreatment than the other; this is contrary to a view sometimes expressed, thatindustry should receive more favorable treatment than agriculture, largely on'infant-industry' grounds. In fact, the task of modernizing agriculture froma traditional, subsistence sector into an efficient, dynamic sector capable ofproducing a surplus for the domestic economy and exports is as difficult asfostering many industries in their 'infant" stages. Second, there is a degreeof, at least short-run, irreversibility in factor movements out ofagriculture. Once labor has moved to occupation in industry and services, it

1/ The Industrial Incentives System, A review and analysis of someapproaches to its adjustment, Green Cover Report No. 4272- UNI, January1983.

2/ If the devaluation to parity with the dollar had been reachedinstead in mid-1984, our analysis indicates that the equivalent tariffrates would have fallen in the range 40-60 percent. The difference inthe rates is due to the difference in inflation between Nigeria and hertrading partners during the interim period.

- 40 -

takes time for it to move back to agriculture especially if skills have beenlost and preferences for city life have grown strong. Finally, evenness ofprotection is the best way to enccursge development along lines of comparativeadvantage.

4.13 Finally, this emphasis on trade and exchange rate policy as a meansof ensuring appropriate incentives for the sector does not mean that only thetraded crops will benefit: since there is some substitutability between mostfoods 1/, if the price of a traded food-crop rises, it is likely that thiswill have repercussions on the non-traded food-crops, though the precisecross-price elasticities are not known.

4.14 In order to permit the above policies to be successful, it isimportant to emphasize a few points of principle:

(a) effective protection should rapidly be made as uniform aspossible across crops, so that farmers can concentrate theirefforts where growth possibilities are highest; temporaryexceptions can be made only in cases where it can bedemonstrated that some extra protection is needed on a temporarybasis to encourage farmers to adopt a new and more profitablecrop which has a high growth potential;

(b) so long as the Government itself is a major importer ofagricultural products, or continues to require licensing ofthese imports by the private sector, careful account should betaken in import allocations to assure that amounts imported areconsistent with agricultural pricing policy. This requirescareful analysis (see item viii below) and strong commitment toavoid letting the market be flooded with agricultural importswhen export earnings are high;

Cc) governmeat agencies should not receive preferential treatment inimporting, since extra or cheaper imports would undermine theother policies;

(d) while policies should remain flexible and should encourageadjustment to trends in international markets, nevertheless itis important, as noted above, to avoid large year to year shiftsin prices in response to shifts in Nigeria's foreign exchangeavailabilities;

(e) a mechanism for phasing out the tariffs and import licencesshould be instituted, which would be implemented as the exchange

1/ A strong inter-relationship has been found to exist between thedemand for all staple food commodities, both traded and non-traded (D.Feldman and K.Ohene-Yankyera: Macro Policies, Commodity Prices andMarketing Constraints in Nigeriai Agricultural Development, FACU, October1984).

- 41 -

rate is devalued; however, both instruments could still be usedunder exceptional circumstances, to even out great fluctuationsin oil revenues.

4.15 In practice, one of the greatest obstacles to implementing theserecommendations is the pressure from urban consumers to import "cheap" foodthat will become hard to resist when oil revenues rise again. However, asnoted above, the importance of resisting these pressures is not so much on.urban-rural equity grounds (although this is an important consideration), asbecause it will only help consumers in the very short-run. Very lowincentives inhibit agricultural production and thus lead to very high priceswhen oil revenues fall and imports have to be restricted. These very highprices--caused by the combination of insufficient growth in agriculturalproduction and the apparently inevitable large fluctuations in oil earnings-pose major problems for all low and moderate income consumers and riskwidespread malnutrition, particularly of infants and small children, among thelow income group.

4.16 There is another difficult question for incentive policy toagriculture--but one which in practice is much less likely to arise, as itwill be relevant only if and when oil revenues suddenly rise dramaticallyagain. Should the tradeables sectors be "protected' from the effects of ashort-run appreciation in the oil-dominated exchange rate, and from theincrease in real wages? The answer is to some extent, and in a systematicmanner-in other words, the Government should keep an eye on what the medium-term exchange rate is likely to be, and not allow a sudden or greatdeterioration in incentives to the sector, on the gounds that agriculturalproduction cannot be 'turned on and off"-it takes time to build upinstitutions and human capital. Incentives should be carefully monitored,and, if necessary, a temporary increase in tariffs could be considered. Inaddition, a "shadow medium-term exchange rate" should be used for appraisinglong gestation projects, such as those in the tree-crop or irrigation sub-sectors, to take account of the likely depreciation in the exchange rate thatwill occur once oil export revenues start declining. Finally, a conservativefiscal policy that would prevent a sudden increase in real wages would bedesirable. The use of a stablization fund 1/ for oil revenues could beconsidered in this context.

4.17 In order to be able to implement these proposals, and especially toprepare for the more tricky situation when oil revenues rise again, it is veryimportant to establish and adequately staff an institution capable of co-ordinating trade, exchange rate, output price and input subsidy policies. Itis proposed that an Agricultural Prices and Tariffs Group (APTG) be set up,which would have a wider terms of reference, and a stronger staff input than

1/ When oil revenues are unusually high, part of these could be "saved-through the fund, to be used when oil revenues are unusually low.Although it is difficult to distinguish exactly ex ante betweenfluctuations and trends, even a rough evening out of the revenue cyclewould be beneficial.

- 42 -

the TCPP. For instance, the APTG would have to set tariff and quota levelsfor each imported crop, and set the equivalent subsidy level for exportcrops. In order to set appropriate policies, it would need to monitordomestic and international prices carefully, and especially domesticproduction responses. It would also need to co-ordinate with a similar groupon the industrial side.

Impact of the Reform Proposals

4.18 The impact of the above proposals has been examined with the help ofa pilot version of a sector model (see Annex IV). While the results shouldnot be taken literally, they can be used as indicative of broad magnitudes andtrends. The model indicates that a tariff schedule of around 50 percent 1/,combined with a devaluation to parity with the dollar, would, in 1984, resultin some lowering of imports below the 1982 levels, and that there would besome positive, though small, response in overall production levels. Thelatter may be underestimated, however, as the model does not capture thedynamic productivity effects of increased investment in the sector that shouldcome from improved incentives. The proposals would entail a substantialreallocation of resources in the agricultural sector and an increase ineconomic efficiency. As a result of the relaxation of import restrictions andrealignment of relative incentives, a number of commodities that are notpresently traded to any great extent, such as sorghum, would become moreactively traded. Measured against 1982 levels, imports of sorghum would beexpected to increase substantially, while imports of rice, wheat cotton andmaize would decline. Exports of groundnuts (presently not traded throughofficial channels) cocoa, and rubber would rise.

4.19 Fiscal Impact. One benefit of tariffs, as opposed to QRs, would bein the fiscal domain. Over the period 1977-81, for example, a 30 percenttariff on imports of maize, wheat and rice would have generated more thanenough revenue to finance the annual export subsidies on cocoa, rubber andpalm kernel. Thus, a system of tariffs on grain imports combined withsubsidies on tree-crop exports could be both self-liquidating in fiscal termsand provide comparable degrees of protection to export and import-substitutioncrops. Tariff revenues would increase, and the additional cost of foreignexchange would not be large.

4.20 Impact on Prices. At present, export crops are handled exclusivelyby the Commodity Boards, which have provided an implicit export subsidywhenever Producer Prices were set above world prices. The proposed 'tariffrates' would constitute the approximate rates of subsidy on the FOB value of

1/ Equivalent to a tariff range of 100-130% in June 1985.

- 43 -

exports. This approach would eliminate the present bias against exportsinherent in the overvalued exchange rate and price distortions. 1/

4.21 The impact that reform of the system of intervention in traded commo-dity markets would have on the prices of non-traded commodities will depend onthe relevant elasticities (including cross-elasticities of demand andsupply). To the extent that resources are successfully shifted from producingnon-traded commodities to traded goods, the prices of the former would beexpected to rise, other things being equal. The point to bear in mind is thattariffs and other measures which raise the price of traded goods will affectprices and output levels of non-traded goods.

4.22 While the preceding analysis suggests that providing more evenincentives across traded commodities can be expected to improve economicefficiency, it is important to consider the need for reform in a broadercontext. The overvalued exchange rate and erractic trade policies haveexacerbated agricultural production disincentives. They have also seriouslydistorted industrial incentives and, because of the high returns on importingand trading, have disrupted labor markets. A move towards more positive andstable incentives would be expected to ameliorate these problems andeventually to lead to more socially productive production. However, there area number of other impediments to expanding sectoral output, such as creditconstraints, inadequate infrastructure, etc. Thus, reform of trade policyalone, while helpful, is unlikely to be fully successful in restoring theability to export agricultural commodities in the medium and long term.


4.23 Trade and exchange rate policies have been the principal factordetermining incentives to Nigerian agriculture during the last decade. Duringthe oil boom periods, the combination of an appreciating exchange rate andrising real labor costs caused a shift in Nigeria's comparative advantage awayfrom the more labor-intensive activities of the sector and generally depressedincentives. When these pressures should have been reversed--during the oilglut period since 1981/82-they were in fact exacerbated by the overvaluationof the naira, and by erratic import policies, which periodically permittedcheap imports to flood the domestic market for the benefit of consumers.Since 1983, however, fairly severe import restrictions have caused a rapidescalation in domestic prices. There is a need now to take advantage of thisperiod of "natural protection" for agriculture, to institute more systematicand consistent incentive policies (both between agriculture and the rest ofthe economy, and within agriculture) and to set up the institutional capacitythat will be able to maintain sensible incentives for agriculture in the faceof changing external circumstances--especially in the oil sector.

1/ For a more general discussion of the prospects for non-oil exports,see Nigeria - Non-Oil Export Prospects, World Bank Report No. 3771-UNI,June 30, 1982.

- 44 -

4.24 The recommendations are:

(i) in general the two major sectors producing -tradeable' goods--agriculture and industry--should receive roughly the samedegree of effective protection (i.e. nominal protectionadjusted for protection on inputs); and that the range ofprotection be gradually narrowed so that efficiency andgrowth can be maximized. This adequate and consistenteffective protection for the "tradeables" sectors should beprovided, preferably through an adequate devaluation, or ifthat is not feasible initially, then through some combinationof devaluation, and tariffs-cum-export-subsidies;

(ii) if the latter package is adopted, the tariff levels requiredwould range from 100-130 percentl/ in the case of adevaluation to parity with the dollar by June 1985 2/;export subsidies should be provided at a rate equivalent tothe effective protection rate on imports;

(iii) a "shadow medium-term exchange rate' should be used forappraising long gestation projects, such as those in thetree-crop or irrigation sub-sectors, to take account of thelikely depreciation in the exchange rate that will occur inthe long-run as exportable oil surpluses start declining;

(iv) effective protection should rapidly be made as uniform aspossible across crops, so that farmers can concentrate theirefforts where growth possibilities are highest; temporaryexceptions can be justified only in exceptional cases whereit can be demonstrated that extra protection is needed on ateuporary basis to encourage farmers to adopt a new and moreprofitable crop which has a high growth potential;

(v) so long as the Government itself is a major inporter ofagricultural products, or continues to require licensing ofthese iuports by the private sector, account should be takenin import allocations to ensure that amounts imported areconsistent with agricultural pricing policy. This requirescareful analysis (see item viii below) and strong commitment

1/ If the devaluation to parity with the dollar had been reachedinstead in mid-1984, our analysis indicates that the equivalent tariffrates would have fallen in the range of 40-60 percent. The difference inthe rates is due to the difference in inflation between Nigeria and hertrading partners during the interim period.

2/ The apparent difference between these tariff rates and thoserecomended for all sectors in the proposed Structural Adjustment Loan isdue to the appreciation in the real exchange rate since those rates werecalculated.

-- 45 -

to avoid letting the market be flooded with agriculturalinports when export earnings are high.

(vi) government agencies should not receive preferential treatmentin importing, since extra or cheaper imports would underminethe other policies;

(vii) policies should remain flexible and should encourageadjustment to trends in international markets--with theproviso, as noted above, that the market should not beallowed to drop out 'rom under domestic producers in responseto tenporary inprovements in Nigeria t s foreign exchangeavailabilities;

(viii) a mechanism for phasing out the import licences and tariffsshould be instituted, which would be implemented as theexchange rate is devalued; however, both instruments couldstill be used under exceptional circumstances, to even outgreat fluctuations in oil revenues.

(ix) an Agricultural Prices and Tariffs Group (APTG) would be setup and adequately staffed to iuplement the above policies.It would also monitor prices, incentives and productioncarefully, and make appropriate adjustments in policy, toensure that incentives to agriculture are not allowed to falldramatically again. It is inportant for the APTG to keep inview the incentives that are appropriate to the structure ofthe economy in the medium-term.

4.25 Although the boost from tariffs would have its principal impact ontraded crops, there would doubtless be some spillover effect onto theproduction of non-traded crops through demand substitution, so that the entireagrlcultural sector would be positively affected. The ixproved incentives arealso likely to have a dynamic effect on the productivity of the sector, byencouraging investment.

4.26 These proposals will help to provide adequate and consistentincentives to farmers and to achieve the maximum feasible agriculturalgrowth. At first glance it may appear that this will be at the cost ofconsumers, but the current price situation indicates clearly that this is notso. Keeping agricultural prices low may help the consumer in the very shortterm, but because it inhibits growth in agricultural production it leads tovery high prices in the medium term. These very high prices pose majorproblems for all low and moderate income consumers and risk widespreadmalnutrition, particularly of infants and small children, among the low incomegroup.

- 47 -

ANNEXES

Page

I. Historical Levels of Production in Nigerian Agriculture ..... 48

II. Methodological Note on the Analysis of Effective Rate ofProtection .................................................. 78

III. Statistical Appendix ......................................... 86

IV. The Nigerian Agricultural Sector Model ...................... 112

V. Trade and Exchange Rates: Incentives, Disincentives andProposals for Reform ......................................... 139

- 48 -

Annex IPage 1 of 30

HISTORICAL LEVELS OF PRODUCTION 1 NIGERIAN AGRICULTURE

-. The Estimation Issue

The actual l.evel and trends in Nigeria's agricultural productionhave been subjects of considerable controversy. At least five differentagencies have compiled production estimates for the major crops, and theirestimates differ widely. The five agencies are: the Nigerida Federal Officeof Statistics (FOS), the Central Bank of Nigeria (CBN) the Nigerian PederalDepartment of Agriculture (FDA), the I.N. Food and Agriculture Organization(FAO), and the U.S. Department of Agriculture (USDA).

The degree of divergence in the alternative estimates is shown inTable 1. The most extreme case is cassava vhere, for example, in 1981 the FOSestimates production to have been 580,000 tons and the USDA estimates it at11,800,0O0 tons. In yams, the figares range from 5 million to 18 million tonsper year in each of the years 1979-81. Generally, the divergences are fa=greater for the root crops and for rice then for the coarse grains. However,there is much greater disagreement for maize than for sorghum and millet.

Sizmilarly, the alternative growth rates differ widely. For alL rootcrops taken together, the FOS calculates a 1970-80 growth rate of -10.1 per-cent per year, vs. the FAO's growth rate of +1.9 percent per year. For allcoarse grains, the FOS estimates a 1970-80 annual rate of change of -2.7percent, vs. the PAO'. figure of +0.8 percent. For cocoyan, the CBN estimatesansnal change of -16.3 percent, over the 1970-80 period, vs. the USDA's +1.6percent for the same period.

The growth rate discrepancies do not appear to have narrowed overtime. For root crops, the CBN and USDA estimates of growth rates a,e closerfor 1977-82 than they are for 1970-76. However, for coarse grains, thereverse is true: the discrepancies are greater for the more recent period.The varlous time series agree 4n only one respect: that total calorie con-sumption per capita has declined from 1970 to 1982, taking into accountimports (Table 2). This single a-ea of agreement has led to the widespreadconcern over the performance of Nigerian agriculture.

It is clear that the various iistitutions concerned -eith 2Nigerianagriculture are very far from agreement, but by the same token none of theinstitutions is will willing to vouch very strongly for its own estimates. Ininterviews, specialists from each agency (including the FDA in this case)emphasize the difficulties of obtaining reliable estimates, and no oneadvances strong reasoning as to why his or her agency's estimates should bepreferred. Yet with each passing year the agencies continue to produce widelydivergent numbers.

14s1 1.. Pmun TIUl1 04!11IlSx IUn RI4IIlA11 AGRIML3Y111511, 10101it , OIly CROPS Ai1111 (MAINSlb sln ttass.nd gaitrls t us)

Aiseal Croelh Satles (53

Crull Saulrcs 1070 1071 I97; 1073 1074 1175 3976 1077 1974 1979 loin loil l59l 1970-.5 1972-li 1977-15

Yams IllS }1,430 11,575 7.15 4,936 7,id 1.621 6,560 4,661 5,6011 5,141 1,754 S,n?7 -1.1 .. / *1O1 3,210 7,00tl 7,715 7,049 1.213 7,0al2 5,s01 6,974 7,468 6,951 6,400 6.sn2 7.014 -2.1 s. 4.1UUllt 15,.10 16,11n4 1362,7 Its.2i 17,210 17,61nd 15,1an01 I5,0o1 11,100 35,360 1,1l0 15,2130 13,410 3.3 1.3 0.1

^ ls3'I Wi 51.34 4,5lo I,173 27,007 1,512 4.314 1,576 1,0110 3,175 1.402 715 sWn -.17.4 J .*IS / .sS.iColl 1,ll1t 4,712 1.IS , 2,170 1,2011 3,135 3,237 1,U31 2,009 1,976 1,011 7,1s9 3,305 *9.1 .3.1 3.6II',IIA 11.171 12,19.6 12.700 1.0nil 13l,wI 13,60n 3,9)00 14,1U0 14,1Iall 14,600 13,1100 11,1110 11,7114 1.0 -0.5 -3.S

I:ui'I*Vi r-; 1,3W oi 1,10 ,330 036 s106 545 524 316 210 725 43 277 -16.1 -14.2 .1*.3lr.I'A f1'41 I,SbS 1,.631 1,1n4(n 1,610 1,700 1,7111 1,7111, 1,710 1,37M 1,750 1.4 L., 0.6

Iwcs IIl5o 11,62I I&,1'J3 0,755 9,t51A 10,7213 12,935 5,435 A.567 7,171 S,544 6.072 S1,717 *1?.l ! [email protected]/ ,-.WI/L3Uois lull 14,140 11,611 12,104 II,OUt II,3a.5 11,170 112,29 3,435 9,153 0,171 5,613 *,'UJ2 9,1S3 -S.2 *..3 0 3

lAil 2S,07 2S,31147 2e.1117 3137 21,S1l 250,30 21,10 25,715 29,5t.1 313,294 I.D N.h'sIISA 2J.1'J" 31J,365 12.iuO 32.40 5.35110 33,7nO 31,061A1 1,410 327,0u 31,727 35,030 1.1 0,2! .1.1

Su,glaaa Ili's 4,051 S,7J4 2,205 3,12S 4,711 3,325 7,010 3,327 2,102 2,40 3,5(2 S,715 -1.1 5.5 7.5!h'lN 4,J41 5,2.5 35.34 2,1S7 3.717 4,372 3,131 3,356 S,625 3,3130 4,1219 4,133 4,714 0.2 3.4 7.01 Al 3,336 3,140 3.161 2,065 3,1S0 3.650 3.650 3,150 3,760 3,711S 3,0n 0 0. 4Y/11u.I1A 3,761 3,140 3.561 2,9od SOu 3,650 3,650 3,7 351 ,764 3,7S 1,0o0 3,7o0 3,110 a n.5 o.s

Hille rihs 3,16 2.1151 2,191 1.791 S5.511 4,737 2,10t s7,S7 2,134 2,366 2,151 2,102 -2.7 3.8k/ 2. F,onM 3,1117 2,013 2,524 2,910 4,412 4,l30 2,530 3,070 3,0n1 2,714 3,441 3.6'I 3,944 5.1 4.n 5.1 FAll 2,761 2,046 3,01J 2,35.3 3,500 2,30s 2,55S 3,110 3,100 3,130 3,200 1.s 2.7s/lIilUA 3,1O1 2,611 3.n0a 2,3s0 2,5110 2,(,s 7,161 2,PS0 3,1130 3.130 3,130 3.111 3,275 0.1 0.7 2.1

13.1*. a IMS 3,IJ1 1,274 h1l 50111 528 1.331 1,07S 7S3 47J 431 6L3 71.4 17.6 2. AI.. 1.41/Cll 3,17k 1,311 Iso 704 7l, 750 1,311 I,017 772 760 741 71.s 536 -6.0 .0.2 .1.7Jm) 13.2a 935 ,064 147 1,215 1,n1131 31 300 3,30 1,4S0 31Sno 1,51 1,saoI 0 3. 5s /(Isn3A 3,210 1,012 1,15 1,277 1.310 1 .1(R 1,410 I,SOO 1,64J 1,470 3,72n 1,17S 1,7AS 3.2 4.3 3.1cI'3- S 1,120 3.0

IOJa1a I lS 1,613 0.0911 S,3215 7,727 10,1316 0,3131 6,035 4,617 1,320 ,7159 6,51. 71.281 -2.7 I.1S U 2. JAgtKlN5 1h1!' 1,497 9,491 6.721 6,241 1,O1S 0,Uo 7, 7,335 7,1 7,4jS 6,i73 1,319 5,569 3,474 -0.,2 35 4.0

$AIl 7,175 7,021 7,473 5,31.5 7,51S 7,76S 7,755 *,050 *,340 5.41$ 5,50 0.S 2.11IUSIIA 5,116 4,570 7,701 4,405 7,65s 7,045 7,981 3,7o0 ,11S5W iSIS 5,610 5,630 1,910 0.6 1.4 1.7

lltce IUS1 211 770 449 457 516 SI1 215 401 60 156 tl. 211 -10.2 *5.h4 -*IS.2Ijo,yJ} I:iho 'O3 27U 9J7 *165 Sll 543 456 SIIJ 416 294 3116 326 374 0.4 -0.4 4.2

fAM) 313 HI 447 457 525 SIS S14 647 SIS n0 7:11 7.1 SUllilllA 4J 41.2 4.,6 S14 5!3 6110 ill 620 176 C711 1 01JO 1.240 1.375 2.5 17.1 11.41.11-6 700 S.C 5.5 k

WCal 1s11:1 19 i0 20 IS Ii t1 20 21 22 22 24 24 27IAO) 6 (, 7 6 4 6 7 7 S R.M. ISIriWt Is 20 21 IS Id i5 20 23 It 71 21 25 30 3-4

13, ,aileui I iv *our.s a e efS, es Irn YS MVlisw ' i Fs 1 aV 1077-I - r s rlih Icleral li(fics of Si aglsijs of NHigela i. 1073-51 LiaO1bil a'ttl rl "inl of Hfigigria re 1977-111IAII 11.11. F,oal., anJ Agricislitire lrlinlial in A/ yams an, cassava onlyr.0I% IU.N. ivsp.-Ila lit of Algriclculilre a/ 1)73-1

f *; 1,;wi ,l 8.11 L . ... .ar Nigeria, Specsial liiivryt of I3iiIl ' ua.''cragc of the threme yrs 199..71a X b g* i,.1l i*i ez ! '' " ,asvl sn 19,!l- A avrjyc e,1sulta tar cocayDn

Table 2. EST3NATES OF TOAL SULIU OF STAlLS 1 1 IN MI(ZIA, 1911-S2(in '000 MT)

Amu I

Orewib asol107 3oll loll2 1373 1374 375 374 311 177l 373 I$" lolt lo2l 173-81('.3

A.i1iti25 1 297 306 IIS I11 511 120 I7S 41S 1,183 976 1,152

ibis. 3 4 2 I 2 4 1 37 4 43 70 106 144

lie 2a a S I S S 217 413 . 4S 5SS 582 592 503

i.1-1 270 133 304 sit 2S5 324 us 8.36 1,51I 1.213 1,835 1,674 1,799 24.1

oatsY f Strlp

CAN 14,743 11,611 121U4 11,014 11,14 11,740 13,283 9,411 9,531 7,171 0.41 5.102 1,ss5 -2.7

t.U 25,073' 2S,471 26,011 23,"? 21,511 31,231 17,713 28,755 21,6S. 3.2394 39,140t 29,.348 1.4Ni0A 2.S5l24 31.36S 12.10 3,U40 UJ,50 31,70 35,0 54.418 R2A 31,727 31,933 0.2

Course gn1uslim 0.51% 9.503 6.721 6.243 1.17 3,29S 7,313 1,500 71,491 ,913 13119 3,00S 3,S46 4.7

Ift(64 0.125 6,14 7,.73 4,407 1,452 1,.43 7,916 1,237 8.54 1.2*a 3.720 3.74 5" 112 4.0

Nice and Aeatcow 1M 4*S 733 792 554 ill 1,040 1.451 1.91 1,518 1.39S 1.,1 423 12.2

I.A 764 843 1 11 838 344 340. 3,l1S 1,774 2,21 2,111 2,776 2,9" 1,432 i1. V

C.1faIy te ra - 0

pra ci;1 13,207 14,513 13,431 17,tf0 11,SS5 t1,.43 21,420 21.141 21.132 *.S

peF5I p.r Vym(co 1,491 1.031 I,S 1,I52 3."gUSIA 1,653 1,.14 1.130 I3S.S 1301

t is1^1oi t7,603 526 40 o0,344 42,532 64,2841 44.0I 07.814 9.761 731,704 73,413 75,133 17.840 10.006

1069*71 average*l4rapelateJ l cb grens -riles of root crups froe tshe uDA series for 19l1 mad 1913

A based oa She spacial surveys if eke Cosratl link of Nigerla for pro#wetloe of msie. rice, mad wetat

Moaes; The comusly assaed papulalloo growth cats for 1973.32 Is 2.7% per year; this growth rate has boem aJppIed to ag. a. 11s1 popelatiomof 3 *l11a. Sea Isblo for ctaorie Cnaerslua factors.

- 51 -

Annex Page 4 of 30

Until then, the analyst must make the beat of the available informa-tion. There are many policy issues for which 4.t is not necessary to have atime series on production, but it is izmortant to have a sense of aggregatefood production levels and their trends. In this report, the available est'-mates are evaluated from several different persuectives in order to try tonarrow the range of disagreement. Both the Ieve' of production and -its trendsare evaluated. Some new wor!rng estimates are developed on the basis of theconsiderations presented in this section.

2. The Alternative Sources of Data

It is usePfu to begin by reviewing the character of each of thealternative time ser_es. Mhe data provided by the Federal Office of Statis-tics are the only nation-wide estimates which are based on field surveys. Theother three time series are based on secoadary information. Clearly, this isa positi-e attribute of the FOS data. However, there appears to be a co0-sensus among Nigerian officials that, for whatever reason, the FOS surveyshave not captured the production of the more commercial and dynamic compDonentsof the sector. The FOS off1cials recognize defic4encies in their surveycoverage, and they are working to improve the situation. The consensus seemsto be that the FOS data are underestimates of the true production levels ina" major crops, but to what degree is unclear.

The Central 3ank applies adjustmeat factors to the ?OS data toco=rect for the under-representation of the more co=mercial "omponent. Theyalso take into account unpublished information from the Federal Department ofAgriculture. The latter are in turn based on reports filed by field agents.The adjustaezts =ade by the C2N are applied to a prsll in-p7 data ser.escompiled from these two sources (and possibl7 other sources); the adjustmentfactors have increased over time, rang±ng from 2 percent -; 1973 to 30 percent-in 1982. As -"ell be seen subsequently, the adjustments are clear'ly ia theright direction, but it La equally clear that they are somewhat arbitrary.Uniform ad,4ustment factors were applied to all c-ops, including grains andtubers. Thus, while the C3N estimates represent a move in the right direc-tion, they cannot be taken literally.

The ?0 and USDA eszimates also are indirect. They differ from t-ePo0 and C2B estimates in two ways. First, given the vari4ations :in producti-o-hich occur in agriculture in all countries, espec:ally where agri-culture 43

mostly raimfed, the FAO and USDA appear to be less accurate in refl.ectlng7ear-to-year changes. ?or example, the coeffic±ent of variat or of the FOSseries on a' rocz crops for 1973-81 Ls 0.09, whereas the co=arable coeffi-cient of variatlon '.- he USDA series is only 0.01. By way of compari4son, afawr samnmle :oeffci-ents of -ar4atlon for other countries may be cited. Theyrefer to zota! food production, which mecessarily is less variable than rootsand tuber production alone, ard they are calculated from ?AO data for the n-neyea-r 1972-80:

- 52 -

Amnnec IPage 5 of 30

Ivory Coast .044Senegal .073

iniadsia .030lexico .035Brazil .042

The reason why the series of the USDA and the PLO (for Nigeria) are unrealis-tically smooth in behavior is that they are compiled from the viewpoint ofboth demand and supply. Thus their weakness is that they are not purelyproduction estimates, but for purposes of obtaining more real.'^.tic long-terotrend estimates the fact that they take into account demand considerations isa useful attribute. This is the second major respect in which the USDA andPLO series differ from that of CBN. Given the veakuess of the direct produc-tion estimates, these agencies have invoked demand considerations in anattempt to estimate approximately what supply levels must have been. Hence itcan be seen that, at a conceptual level, each agency's numbers have someadvantages and some disadvantages. We turn now to direct evaluation of thosenumbers, first as regards their levels and then as regards their growth rates.

3. Nutritional Implications of the Time Series

The first question to be asked about Nigeria' 9 agricultural produc-timn estimates is what their implications are for the nutritional status ofthe population. To arrive at answers to this question, it is necessary toaccount for imports 1/ and for waste and losses of nutritional value duringproceosing and marketing. Also, seed retention at the farn level must bealloved for, and that factor is particularly important for roots and tubers;for those crops as much as 20 percent of the harvest may be retained as seedmaterial. Calories have been selected as the most basic indicators of untri-tion. The PLO has compiled conversion factors to allow for loss of caloriecontent at various stages of the farm-to-market transformation process.2/These factors are shown for Nigeria in Table 3.

Also, it is useful to have in mind benchmark figures on rates ofcalorie consumption. For a country of Nigeria'a approximate income levels,daily per capita calorie consumption typically falls in the range of 2,000-2,500 calories. Specifically for Nigeria, average daily calorie consumptionper capita has been estimated recently by the PAO at 2,257, 3/ although thatfigure may not be independent of the PAO's production estimates. Some

1/ Basic food crops (root crops and grains) were not exported duringthe period under question.

2/ It is not necessary to deduct for the weight loss in on-farmthreshing, for the standard practice in compiling production estimatesis to refer to threshed production.

21 Cited in D. S. Igambeki, "Trends in Production of Root Crops inAfrica," Agricultmral Economics Infcrzation Bulletin No. 3, Interna-tional Institute of Tropical AgricuLture, June, 198t.

- 53 -

Table 3. CALORIr COVmS0ioN FACTORS ane 6 o

MaizeLosses for:

feed, seed retention, waste 221milling 8a

Net conversion factor 72%

Calories/kilogram: consumer level 3550farm/import level 2S;6

SorghumLosses for:

feed, seed retention, waste 17%milling 9%

Net cenversion fac:or 7S.5%

Calories/fkilogram: consumer level 3320farm level 2507

MilletLosses for:

feed, seed retention, waste 22%milling 9%


Calories/kilogran: consumer level 3270farm level 2322

Roots and tubersCalories/kilogram: consumer level 1010 to 1450

arsm level 614

RiceLosses :or:

post-har:est waste 71husking ,:Willing S5

Net conversion facto-r (farm to cor-sumer) S9%

Calories/kilogram: consumer level 3630farm level 2142imports 3449

WheatLosses for:

seed retention, waste i%milling 30%


Calories/kiloagr=: consumer level 3300farm level 2244imports 2310

Sources: Conversion factors: PA0Caloric fac:ors at zhe consumer !e2 !: U.S. Department of

Agricalture, Handbcok of the Nu:ritional Contents of Foods,Dover, New York, lY.5

1 vish to acknowledge thu valuable assistance o0 Mar;arct Messliaen, of theU.S. Cepart=cnt o: A.r-cu1:ure, :n% Zownnu !eslie, of :he Woard Bank, incocpiling the materias used in this :zbie and in Tables ' and '.

- 54 -

Annex IPage 7 of 30

reference figures on calorie consumption and per capita GDP for othercountries are shown in Table 4. Another benchmark to bear in mind is thataverage daily calorie consumption of 1,500-1,600 or less implies severe mal-nutrition.

A portion of calorie intake in any country derives from consumptionof edible oils, vcdetables, meats, and eggs, and, depending on dietary habits,dairy products. Production estimates are not compiled regularly ix Nigeriafor most of those foods, and in any case we are more concerned in the presentcontext with grains and roots and tubers. Nevertheless, calorie consumptionfrom these other foods must be accounted for. Fortunately, there is a reason-able stable relation which appears to govern the role of grains and root crops("staples" hereafter) in the diet. On the basis of studies in many countries,it can be asserted with some confidence that staples account for 65-72 percentof the calories in the average diet in Africa. Some country-wide observationson this percentage are as follows: 1/

Upper Volta 72 percent (wheat, rice, maize, millet, sorghum)Niger 67 percent (rice, wheat, millet, sorghum)Liberia 65 percent (wheat, rice, cassava)Cameroon 66 percent (wheat, rice, maize, cassava, millet,

plantsins, peanuts, potatoes)G*hana 69 percent (wheat, rice, malze, cassava, sorghum,

millet, plantains)Egypt 65 percent (wheat, rice, maTie, sorghum, barley)Morocco 66 percent ('heat, maize, barley)Sierre Leone 67 percent (wheat, rice, cassava)

The same USDA source reports the percentage of calories deriving from staplesin Nigeria to be 72 percent.

These figures and considerations provide a basis for reviewing thecalorie implications of the reported staples production figures for Nigeria.As Table 2 indicates, all four cited sources agree that average daily calorieintake has fallen in Nigeria from 1970 to 1982. (We return to the issue oftrends subsequently.) According to the CBN estimates, in 1982 staple foodsprovided 1,099 calories per person per day. Using the 72 percent mentionedabove, the implication is that average dally calorie consumption in Nigeriawas 1,526 in 1982: that the average Nigerian suffered severe malnutrition.Bearing in -ind the international averages for calorie consumption rates, thisfigure clearly is out of the reasonable range for Nigeria, with its per capitaGDP of S820 in 1982. Using a 65 percent staple share in total calories doesnot bring the tntal calorie implicatLon of the CBN figure into the acceptablerange: it become 1,691. As the POS production figures are even lower, theircalorie implications are even less acceptable.

1/ Source: U. S. Department of Agriculture, 'World Food Aid Needs andAvalabilities, Washington, D.C., April 1982.

- 55 - Annex IPage 8 o '30

Table 4. AVERAGE DAILY CALORIE CONSUIPTION IN SELECTED COUNTRIES

Daily Calorie GDPConswuption per Capita (USS)Capita, 1965 1972

Argentina 2,868 1,069

Brazil 2,S41 370

Cost: Rica 2,234 482

Chile 2.523 721

Guatemala 1,9S2 365

Jamaica 2,2243 480

Mexico 2,623 470

Panama 2,317 646

Venezuela 2,392 1,098

Oalaysia 2.25S 352

Cyprus 2,459 742

Libya 2,031 1,050

Egypt 2,421 229

Algeria 1,967 318

Gabon 29164 S48

Ghana 2,136 ,257

Liberia 2,287 198

Niger 2,211 100

Senegal 2,348 234

IvoTry Coast 2,433 271

Tunisia 2,15; 269

Source: FAO data cited in S. Reutlinger and M. Selowsky, Malnut:itionand Poverty. Maq.;n:ude and Pclicy Ontions, The World Bank,Washington. D.C. 1976.

- 56 -

Anne: IPage 9 of 30

The USDA production eatimates for 1982 give a daily calorie figureof 2,224, and the FAO's ia slightly lower. Thus, in spite of the ratherarbitrary nature of the time trends in these latter estimates, in the aggre-gate they are much more aoceptable inL absolute level on grounds o-' theirimplications for calorie consumption. The weakest link in this chain ofreasoning is the acoptance of the 65-72 percent share of staples in theprovision Of total calories, but given the apparent international stability ofthat share, it is difficult to advocate altering this assumption. /

The FAO and USDA information cannot be interpreted as direct esti-mates of production levels, but rather as inferences on production on thebasis of both supply and demand considerations. Given the difficulties ofobtaining direct estimates, the inferences appear closer to the mark,overall. Further evidence on aggregate production and on individual crops isreviewed in the two folloving sections, which provide a caveat to the conolu-sions reached thus far, and then we turn to the isaue of growth rates.

4. The Case of C.ssava

As Table 1 shows,.the estimation discrepancies are perhaps greatestfor cassava, which is consumed in the form of gari. In the course of theWorld Bank project preparation work and other studies, a number of esitmatesof gari consumption per capita have been compiled, and these estimates mayaerve as indirect indicators of production levels. Recall that the oassavaproduction estimates for 1980 range from 788,000 tons (POS)to 13,100,000 tons(USDA).

The Green Revolution 2/ report estizated that the national averageof annual cassava consumption in 1980 was 73.24 kg. per capita, in unprocessedequivalent form. This figure would imply a production level of 5,547,000tons. The project preparation reports for the southern states suggest higherdai.y cons='ption figures. For example, the Izo State ADP report uses afigure of 46 kg. per capita of gari, which translates !=to 184 kg. per capitaof cassava. On a national level, this would imply production of 13,632,550tons, but Imo may not be representative of national patterns in gari conaump-tion. In ter=s of the equivalent amount of unprocessed cagsava, other esti-mates of annual consumption per capita from the ADP reports are as follows:

South Cross River 300 kg.Oyo Korth 386 kg.

21 -Peter Ay of ZITA has found that an enormous number of vegetables-inexcess of 100-figure in the diet in some locales in southwesternNigeria, so that could imply that vegetables provide a higher-than-usualshare of total calories. However, average quantities consumed of eachproduct are not known.

2/ F. S. Idachaba et al., The Green Revolution: I Pood Production Planfor Nigeria, a study conducted by the Food Strategies Maisson, FederalX4"4 tzy of Agriculture, Lagos,, ay 1980.

- 57 -

Annex ;a go 10 of 30

And, for total consumption of roots, a Central Projects report uses a figureof 270 kg. per capita. On a nationwide basis, this latter figure impliestotal root production of 20,449,260 tons, vs. 6,072,000 according to the FOS(1980) and 32,990,000 according to the USDA. The South Cross River and OyoNorth fi;ures, if extrapolated to the national level, would imply cassavaproduction alone of 23 to 29 million tons.

Finally, the Bank's Agricultural Sector Review of 1979 cites 3tate-level production figures for 1975/76 which, for cassava, add up to a nationalproduction level of 6,412,000 tons. The more recent project pr ;paratLonreports for a few states g:ve higher astimates. For example, the 1975/76figures show cassava productton at 294,000 tons in Cross Rive: .d 783,000 inImo and Anambra ta!cen together. The latest project preparation reports est4-mate (for 1962) Cross River's cassava production at 1,310,000 tons and 7no'salone at 1,125,000 tons.1/ In other words, just the information from thesetwo reports would add 1.3 million tons to the earlier 1975/76 esttmate of 6.4million tons. (The FOS shows cassava production declilnig sharp!7 from 1975to 1982.)

It is difficult to draw meaningful implications from these ffigures,except to say that the FOS (and CBN) e3timatea, unfortmnately, again appear tobe far too low. A reasonable cassava production figure would appear to lie inthe range of 7-15 million tons, rather than the 1-2 mi'i.on ton range of theFOS and the CBli.

It should be poin-ed out that these conclusions do not necessaril7reflect on the statistical capacities of the FOS and the CBX, but rather theyunderscore the diffial-ties of direct collection of production data. Tn thecase of Niigeria, it is informative that the productio=-side esti=ates appear'o be in greater error for the root crops than for the grains. The roots andtabers present special difficu.lties for estimating har7est volzmes, i:asauchas they are cocmonly harvested over periods as long as two years, 2/ socetimes

as long as three years, and sometimes at irregular intervals. In these c:--

cnstances, consumption-based estizates of production are a'-os: certe- to becloser to the mark than di4ect field estimates. This 4ssue in survey metho-doloSy should be revrewed by the interested institutlons. ?erhaps continuopsmonitoring (weekly or biweekly) of a sample of households, cover-ng bothconsumptoro and production variables, :Ls more appropriate than the tradi tonaahave3t-ti=e vs4 ts tc the field.

1/ This estimate of 2roduction from these two states "s greater thanthe FOS and CBI estimates or the entire nation.

_/ See, for example, 'W. S. 0. Zzeilo, j. C. 7lmm, and L. 3. W41i2a=a,aCassava Benci-ma:k Stady: Eastern Nigeria," Agric--tural EconomicsDiscussion Paper No. 2/80, 1T_A, Ibadan, 1_e0; and P. 1- Nweke and ?. E.winch I-I, Bases for Farm Resource AIJ.ocation on the Sna''o'de= C=ompinSystem of Souzheaszer= j4 ge.a: A Came Stud7 of Awka and Abekal=eiVillages, Agricultursl 3conom:cs Dlscussion ?aze= 4/;0, IIA, :badan,3igeria, Apr4l, 1980.

- 58 -

Annex IPage 11 of 30

5. Land Recuireients for Production

Another perspective on the reported production levela is provided bytheir implicit land requirements, matched against independent estimates of thetotal land area cultivated in Nigeria. FTallowing practices are very common,so it is necessary to refer to cultivated land rather than arable land. TheBank's 1979 Agricultural Sector Review refers to a much earlier estimate bythe FAO of 16 million hectares cultivated. Whatever the accuracy of thisfigure, it is not likely to have changed much until recently, when perhapsfertilizer use has been substituted to some degree for the practice of fallow-ing land. As will be seen, a recent independent estimate tends to confirmthat FAO figufre.

It is also necessary to take into account the pervasive maltiplecropping. The extent of that tendency may be seen in the following resultsfrom the APKEPU surveys, which give the percentages of the cultivated area insole stands and in mixed crop enterprises:

Sole % Xixed %

Lafia (Plateau) 1981/82 19 81Bida (Niger) 1960/81 30 70Ilorin (Kwara) 1980/81 12 88Puntua (Kaduna) 1980/81 21 79

Takwng tnto account the area of each plot (with multiple plots per farm) andthe number of crops per plot, the following cropping intensities have beencomputed for the AP3MU surveys which are available in the requisite detail:

Bida 1980/81 1.48Bauchi 1980/81 1 .53Gusau (Sokoto) 1980/81 2.44Lafia 1981/82 2.02

A simple average of these figres duggests that the nationvide croppingintensity may be of the order of 1.9. These samples represent only four areasof the country, but two of them are in the north and two are in the middlebelt, and casual evidence suggests that cropping intensities are not verydifferent in the mouth.

Thus applying this approximate cropping intensity, the early FAOestimate suggests that the total area harvested, allowing for multiple crop-ping, should be of the order of 30-31 million hectares. (Some direct state-level estimate of total cropped area are beginning to become available and arereviewed below.) In 1982, Saphe and Company, a firm of agricultural invest-ment consultants, calculated that the total cultivated land-includingmultiple cropping-amount; to 34 million hectares (out o' their total estimateof 72 million hectares of potentially caltivatable land). Their estimate :sclose to the early PAO estimate, considering the difficulties of estimation inthis area and the possibility that the cultivated area may have increased inrecent years. Therefore we shall use the figure of 34 '41'Eon hectares as areference point.

- 59 -

AnnexI?age 12 of 50

One way of checking the available productin estimates is to dividethen by yields and note whether the resulting calculation of cropped area isof the appropriate order of magnitade. There exists a reasonable consensusabout yields, and in any case we are interested in very approximate checks onmagnitudes. A preferable variant is to perform the division by yields at thestate level, for average yields do vary by state. The various production timeseries are not available at the state level, but two disaggregations by stateare available, one compiled for the Green Revolution stady, for the year1974/75, and the other compiled by the World Bank, for the year 1975/76. Thetwo sets of figures differ in their total reported product-ion levels, but weare mostly interested in using their percentage decomDosit±4ons of oroductioaby state. For record, these two set3 of estimates are compared iT Table 5with the previou3ly e4 ted estimates.

'rom these two state-level production reports, the percentage disag-gregations shown in Table 6 have been compiled. Simple averages of the stateshares in the t-o sources were taken. FrQm these state shares, fle may coptutetwo altarnat±ve distributions of .oroduction by state for 1976: one based onthe aggregate CBN data and the other based on the aggregate USDA data (both£hown in Table t). These spatial distributions are reported i- Table 7.Interestingly, rice is the crop whose production i_3 cost evenly d1stributedover states, folowed by maize and cassava, irn that order.

The numbers in Table 7 may be comb,4ed with information on yi-alds toderive estimates of land use. Y4elds, unlike total production level3, zreconcepts more easily quantified through accumxlated field exreie-ce. TheWorld Bank -roject reaorts provide such estimates, and they in tuns are basedon discuss'0ns with many Xigerlan specialists. Since yields do not changerapidly over time (except perhaps in the case of =aize in- some of the northe=nAgricultural Development Projects), y4eld estimates from diffare=t years maybe used. This procedure eives estimates of lacd use by state and in tota7 forthe nation.1/ The resulting state-level estlaates are not pa-tic ulr2:yre&;able, and the cr-o-by-state esti=ates even less so, but aggregat4on a2mosteaways reduce errors, and so the national estimate should be indicative. --woland use est;imates are reported in Table 9: ore 4-mplec by tre CBN prouctioestimates ae.r one implied by the USDA production estimates. In addt-icn tohelping to evaluate the alternati7e production series, this kind of exe=c4 seserves as a consistency check on the available infor=ation on yLelds and landuse as well as Droduct4on. As data 4m-Orve over time, the consistency checks

1/ It is assumed that the ten major crops reported i: nables 8 a-n Oaccount for 85 percent of tota'l c'tj-ated land; acrn=a'y -.e tsprinc4oal crops represeat 80-90 p2erea: of land ase. A preliminaryversion of Table 8 was presented in "A ?ilot Mcdel for MgerianAgriculture," R. D. Norson, draft report to the Vestern _f=ica 3egionalOffillce of the 'Jorld BaR-k, November 1982.

Annen. I-60 - Page 13 of 30

Table 5. FOUR ESTIMPTES OF PRODUCTION FOR THE MID-1970s

(thousand tons)

GreenRevolution Wcrld CBN USDA

Report Bank1974/75 1975/76 1975 1976 1975 1976

Maize 1,075 1,244 780 1,341 1,400 1,440

Millet 3,680 2,349 4,839 2,839 2,86S 2,865

Sorghum 3,602 2,S79 4,372 3,138 3,680 3,680

Rice (paddy) 654 878 543 456 600 611

Cassava 3,650 6,412 3.352 3,237 13,900 14,000

Yams 7,622 7,453 7,902 8,504 17,600 18,000

Cocoyams 699 1,601 506 548 1,640 1,680

Groundnuts 1,989 683 n.a. n.a. n.a. n.a.

Cowpeas 870 800 n.a. n.a. n.a. n.a.

Palm oil n.a. 510 n.a. 5.a1 n,a. n.a.

Sources: (1) F. S. Idachaba et al., The Green Revolution: A Food Production Planfor Nigeria, a study conducted by the Food Strategies Missions,Federal Ministry of Agriculttre, Lagos, May, 1980.

(2) West Africa Projects Department, The World Bank, Nigeria AgriculturalSector Review, Report No. 2181-UNI, Washington, D.C., June 29, 1979.

C3) Table 1.

- 61 Annex IPage 14 of 30

Table 6. ESIsMATED STATE SHAREIS IN PRODULcION, BY MAJOR CROP ('I)

(1975-76)

States Maize Millet Sorghum Rice Cassava Yams Cocoyams

Sokoto & Niger 1.7 30.7 28.4 15.8 0.4 3.3 -

Kaduna 14.1 9.1 20.0 3.4 0.9 0.4 0.6

Kano 2.7 20.4 22.8 3.2 2.4 - 0.3

Borno , Bauchi,Gongola 6.7 35.0 18.3 13.3 3.2 2.2

Plateau 4.7 1.8 4.0 4.7 3.3 5.9

Benue 5.3 1.9 3.0 12.5 6.7 17.0 1.8

Kwara 8.1 1.0 2.7 8.0 9.4 9.7 0.3

Oyo, Ondo, Ogun 30.7 - 0.8 9.2 33.0 23.2 37.0

Lagos 0.6 - - 3.8 2.1 1.5 1.4

Bendel 9.7 - - 15.4 14.5 14.0 3.9

Imo, Anambra 11.2 - - 9.3 1S.7 14.4 30.6

Rivers 1.2 - - 0.S 4.1 3.3 10.1

Cross. River 3.2 - - 1.0 4.4 5.0 13.9

Totals 99.9 99.9 100.0 100.1 100.1 99.9 99.9

Source: K1ission's estimates. See text. A dash indicates zero production or a shareof less than one-tenth of one percent.

Table 7. ALTePNATIVI IWFIRENCIS ON MiOWCTIOIN IV STATE, 1976(000 tons)

I4alae MIllet 5ovgh~u RIca Causava Yan CocoyassStates ca " USDA CIII m sDA CINS USDA Cn Ne USDA CA s USDA CIW V USDA Co USDA

SOlOsO 4 NIger 23 24 172 IS0 891 1.041 72 253 Is 56 211 594 -

Klauna 169 203 2S1 261 621 736 16 21 29 125 34 72 3 10Kano 36 39 579 134 715 919 IS 20 7S 334 - - 2 SornO, lmuchi,Calaugo2 90 98 994 1,003 574 673 61 11 104 44S 117 396

Plateau 85 68 Sl 52 126 147 21 29 107 4S9 502 1,062 -

Benue 71 78 S4 54 94 310 S7 78 217 9ll 13446 3.006 10 30KIWara 109 130 26 29 IS 99 36 43 304 1,307 824 1,746 2 SGyc, OndO, Og,u 412 442 * 25 29 42 56 2,068 4,S67 1,073 42176 203 622

IJaJss 8 10 * * - 17 23 63e 292 123 270 8 24etm101 2130 140 * * 70 94 469 2016 1 1,191 2,520 21 6b 61Io, Anambra I5O ISI 1 42 57 SO0 2.122 1,225 2.592 16S S34RIvers 16 17 - a 2 S 133 570 2SI 594 55 170Cross River 45 46 - * S 6 142 612 425 900 76 234

lrJrALS 1,340 2,452 2 ,36 2,363 3,133 35,67 456 766 3,240 13,916 8,497 17.912 S43 2,6I0

Sorce.: The parcentagas Jo Table 6 were applied to the total production esttsates Is Table 1. The totals reported have *may nt correspond exactlyto tbose In Table I because of roUndIng error.

1iH

-63- Anex Iage 1 6 o- 30

Table S. NZIRIA: AV!RAE YIELDS tN1Eit TRAOtTIMAL. F--MCZIN TEMNOLCIES. BY cOM Ax4 BY STATECtas/h.te)

GCOM

Iwla.: Sorghum Hill.c Rice lEvcs Coupeas Yam casara Cocton Cw.oy.ia

Sokoto 0. 33S 0.SSI 0.306 0.61 0.423 0.211 a. 19rnigr 0. o 0.6 1.01 0.3 0.12 3.0 4.0 0.3Kaduna 0.9 0."S (0.300) 11.0) 0.4" 0.2 (S.0) 0.24 (S.Q0low 0. 4so 0.475 0.300 (1.0) 0-27S 0.11 (6.0) (S.0) 0.16 (5-0)

(6.0) (S.Oj

tauchi 0.417 0.4:S 0.331 0.4 0.076 (6.0) (S.0) 0.4Gonagola I.S 0.0 (0.4) (0.1) (6.0) (S.01Plateau 0.75 0.6 0.45 0.8 (0.4) 0.25 6.0 S.0

Ietn 0.1 0.7 0.8 1.1 0.7 0.4 6.0 7.0 (S.01Km.a= 0. ,S O.S (0.S) (1.03 (0.4) (0.20) S.0 4.0 (S.0)oYO o.ao o.s 0.1 7.0 7.0 (S.0)0z4o 0. 7 0.C 0.13 *.S 6.0 (5.0)O0a (0. TS) (7.01 (7.0) (3.0)Lagos tO--a) (1.0) 0.0) t6.0) (3.0)Beadel (0.00) (1.0) (7.0) (t.0) (S.0)Imo 0.7 (1.0) (7-0) 7.S S.C

Anacra 1.35 1.3 6.5 8.0 4.0;awoers (0.30) (1.0) (0.4) S.0 (6.0) cS.0):.as SAIrwrii.srue tl.0) t0-4) (7.0) (6.0) S.

SNtOl Ave.1975. FAo 0.3 0.6 1.9 0.4 0.2 10.0 -10.0 0.3

Nat'l Ave.19-5/ '6

FOS* 1.20 0.70 0.77 1.74 0.72 0.31 10.47 r.46

.nhre-yea.r average. L974/75. 1973/76. and 1976/77."pul"ses

:.ires in parentheses are the author's anima:es.raco: These fields reflSec: mulciple .rppin; prac:ices as well as single c.Upping.

'Me qu..alent sole scand yields woutld be higher.

acurces -33xo:. average of' yieLds in a) Sokoto AOP. Project Flme Working Pape-s.

Feb. S. 1931 (wezfce.4 ave. of yields In four -ones in the So2kotoADP); b| Appraisal of Gusau AOP. Sept. 6, 1974.

.P;lg,r: Jida ADP 5taff Appraisal Report. Feh. 23. 1979.Iadma: Appraisal of Ftua -OP. Sopt. a. 197-4.iio: Lno Slate AD?. Staif Appraisal .reprc. Apri1 6. 1981.

64u,.A: 3auchi State ADP. SCaff Appraisai Report. April o, 1981 (simpleaverage of yields in four zones of che scate).

Congola: karbilla D. . Narch '4, 1982.Plateau: Appraisal of Lafia AOP. 3tay 20. 1977.aaenu: Appraisal of kyangba AV. gay la. 197.7.

war: .orjA AOP Staff Appraisal Reporr. Feb. 26. 1979.Oyo: Oyo North ADP itaff Appraisal Repor. tArch 13. 1980.Cndo: - ElLci-Akoko ADP Staff Appraisal ReWrt,. April 1.. 19So.too: Draft Tao AD? appr:lasl repor-.Ienue: Draft Benu. AD? appra:sal repor:.Aamra: Draft An=mbra ADP oppraisal report.

Table 9. ALT11WiATIVI ISTINATLUS OF APPARENT AUA lINMI CULTIYATIO0, SY CROP AND BY STATE(197.-76'. In thousand heatAres)

Unite Sorghum millet Ric Csava Yas CucoyansCIN USDA CUll USDA CAN USDA CIIN USDA CQN UISDA CmN USDA CIN USDA

Sokoto 4 MlIii.!' 32 33 1.140 1t106 2IISO 2.176 50 312 3 14 S4 2IJ

Kadunm 210 226 oil 951 160 370 16 21 3 7S 6 12 1 2

Kano 10 67 1 0SS 1,746 1,930 15947 IS 20 16 67 - I

Burso. 3A&*u1,I:ongolmat 1.42 IS2 1,243 1,463 3,003 3,030 153 203 21 39 31 66

ilFteuu S4 91 210 24S 113 116 26 36 21 92 S4 177

beiaue 39 109 134 157 65 63 52 69 31 133 III 353 2 L

Kwura i4s 137 170 1il S6 51 36 49 76 327 161 349 * I

Jyo, OM490('21ftic 132 570 SO S - - 70 es 160 633 239 611 41 124

ILagas 0o IS - - . . 17 23 It 49 Is 39 2 S

RenOel 163 17S - - * * 70 94 73 336 170 360 4 13

1 RAU, Aabtra/ ISO 161 * - * 37 50 66 232 31I 334 37 114ivers 20 21 - * 2 3 22 9S 56 li9 it 34

cross llver 54 So - - * S 6 24 102 62 129 IS 47

TOTALS 1.711 1.369 1.744 6,674 5,350 3,965 SSS 079 535 2.299 2,291 2,741 110 347

,-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Li IC,

Table P. ALIIRNATIVI ESTIMA1LUS OF APPARENT AIEA MCA CULTIVATION. BY COI ANID BY STATI (contliued)(197S.7b,'In thousand hectares)

Gro,ndnuts CowiCes Coltoll Aren Cialtivatod In Tcn U-ijor Crojs Area Cultlivalad in AIll Crops Cultivated Areallorul.lank World lank World Baisk CDR U*NDA CsI usnA It-parted In

AlP Appraisals

Sestalo A Nigar- l/ 515 166 S.774 6,361 6,793 7.417

KaJImA 194 165 171 2,465 2,66) 7,004 3,140Iawi 644 860 l1S S,24S S,S17 6,171 6,573 2,100adinu,. 8101h.

IF 1nmalrml 755 1,78S 104 7,242 7.647 8,520 1.096Ilalcau 3i 21 SOf 7 Iis 705 962bCiiI. 3 IS - 675 043 676 %,log 1.0O0Iwoara 10 ISO -01 I,lS 951 1,547ny, n,.u,.

41I;laua 1 67 - 1,219 2,221 1,434 2.613I.1gs - S - 63 134 74 ISebhe.lei . ID - 49S 911 512 1,167tw1. &aa.b,rd - . 471 991 514 1,IL6 l, 65Hivers 3 114 275 134 324 o

CrVui River 10 S - 174 357 205 420 @

lolrAl.S 1,142 3.048 638 25,247 30,309 29.702 35,653 64,2S

i1i9~~~~~~~~~~~ Ht

w4

- 66 -Annex IPage 19 of 30

will become more meaningful and may provide a basis for revisions of some rawdata.

The results in Table 9 are interesting from several viewpoints.First, the estimation differences among irntitution are less in terms of landthan they are in terms of root crop production. Second, the differences aregreater for the middle belt state than for the north, and they are greater yetfor the south. Third, although grains and root crops are of comparableimportance as sources of calories in the diet, graimn occupy by far thegreater amount of land (77 percent to 90 percent of total cultivated land ingrains and root crops). Fourth, the prior estimate of total cultLvated land(34 million hectares or slightly less) is in between the estimates of the CBNand the USDA, albeit slightly close to that of the USDA result which providesa caveat to omr earlier conclusion about the degree of understatement in theCBN estimates. Given the very approximate nature of the 1962 FAO estimate of1-6 million hectares cultivated (without double cropping), and the subsequentSaphe estimate, the previous evaluation in terms of implied calorie consump-tion is more reliable. However, while the USDA estimates may be somewhatcloser to the mark, the exercise which led to Table 9 suggests that the USDAfigures may well be slight overstatements.

Obviously, analyses 'ike the foregoing are not going to lead to firmconclusions; but they shed some light on the current situation as regards ourknowledge of agricultural production levels in Jigeira, and perhaps they willbe useful in future attempts at data reconciliation. Clearly, a major efforttoward improvement of the available data is warranted, and, as indicated, themethodologies for estimation of production of roots and tubers merit re-thinking.

6. Some Working Estimate of Production Levels

For working purposes, we have taken into account the conclusionsfrom Tables 2 and 9 to set out a rough estimate of product±on levels for theyear 1982 (Table 10). These figures were derived as follows: in recognitionof the indication from Table 9 that the USDA estimates may be somewhat toohigh, an adjustment was made in the assumption that 72 percent of calories.derive from staples; that figure was lowered to 65 percent, which is the lowerend of the plausible range. Next, the results of the Central Bank's specialsurveys were accepted as the most reliable estimates for production of rice,wheat, and m*4ae. The USDA estimates were accepted for production of sorghumand millet. Finally, the USDA figures for production of the three major rootcrops were adjusted proportionately so that the total PAO calorie figure wasattained. In treating imports, their fluctuations in recen,t years were takeninto account by using an average of 1981 and 1982 in arriving at the recon-ciliation of calorie intake.

It is not possible to adv.nce a strong case for the accuracy ofthese working estimates either, but they have the following virtues in com-parision -with the available time series: they are preferable to the USDAestimates in impl4ed land use, they recognize the relative reliabi14ty of theCentral Ba"k's special survey in 1982, they are preferable to the aggregateCentral Ban" and FOS figure on grounds of implied calorie intake, and they are

- 67 - Annex IPage 20 Of 30

Table 10. WORKING ESTI.'IsATES ON ICIGERIRNSTAPLE FOOD PRODUCTION, 19S2

Production Calories perCrop (000 tons) Capita per Day

A. ProductibnYams 17,258 363Cassava 10,926 230Cocoyam 1,634 34

Sorghi:m 3,8S0 331Millet 3,275 260Maize 1,120 98

Rice 700 S1Wheat 45 3

B. lmtorts (1981/82 average)Rice 35S 42Wheat 576 46Maize 104 9

Calories fro= staples 1,467

Calories _ all foods 2,2S7

- 68 -


preferable to the latter for the special case of cassava, based on independentestimates of rates of gari consumption. Nevertheless, they have developedonly as approximate ben"cmarks; the more important issue is co improve thesurvey procedures in Nigeria, particularly for root crops.

7. Growth Rates of Production

As noted, all available estimates concur in shoving a decline ofstaple food availability per capita from 1970 to 1982, even in the face ofsubstantial increases in imports (Table 2). Staple food imports increased by18.6 percent per year from 1970 to 1981, before dropping off sharply in 1982owing to the balance of payments crisis. Again the various estimates are insharpest disagreement for the root crops, and also they disagree most for theperiod 1970-73. As Table 2 shows, the CBN and the USDA actually are in rea-sonable agreement concerning trends in grains production.

Of course, the anomaly is that incomes and aggregate consumptionlevels in Nigeria grew rapidly during this time, and aggregate food consump-tion almost always isa positivelT correlated with income in developingcountries. The anomaly is lessened somewhat by confining the analysis to theperiod 1973-81 or 1973-82, when both the CBI and the USDA report that staplefood supplies per capita, as measured in calories, were approximatelyconstant. Nevertheless, total real private consumption is estimated to haveexpanded by 6.5 percent per year during 1973-81, and the expenditure (orIncome) elasticity demand for calories has been estimated for a number ofcountries-at-about 0.6.1/ Applying this elasticity, and decomposing theprivate consumption growth into its per capita and population growth com-ponents, the implication is that food supplies should have expanded 'y 5 per-cent per year, rather than rema-ning stagnant.

Several hypotheses may be adduced to explain this discrepancy:

(1) Real private consumption actually grew much less rapidly.

(2) The income distribution worsened sufficiently so that a constantper capita food availability is consistent' with the reportedaggregate consumption growth.

(3) Food consumption actually increased, but in the non-staple foodsrather than in tne staple foods.

(4) Relative prices changed suffic4ently to indu-e alternative (3)or to induce a shift out of food consumption and into non-foods.

1/ See 0. Knudsen and P. Scandizzo, "The Demand for Calories inDeveloping Countries,; American Journal of Agricultural Economics, vol.60, 1978, pp. 402-415. A caloria demand elasticity of 0.5 for Colombiais reported in P. Pinstrup-Andersen and S. Caicedo, "The Potential Impactof Changes in Incomo Distribution on Food Demand and Human Nutrition,"American Jourmal of Agricultural Economics, August, 1978.

- 69 -


(5) The reported growth rates in food product4on are too 1yw.

(6) A combination of the above possibilities.

These hypotheses are addressed seriatim.

There is no independent check on the national accounts time series,but observations may be made which suggest that hypothes3s (1) cannot explainaway the dilemma. First, given the large increases in N4ge-ian petroleumexports for= 1970 to 1980, it is clear that incomes, and therefore expend±-tures, must have increased rap4dly. All casual evsdence, such aa the presenceof infrastr tu3r bottlenecks, confirms that this was 4indeed a 'boom period'in Nigeria. Second, even a mach lover rate of g=owth in private consumptonwould ha-ve been associated with a rapid increase in food demand, by the usuallaws of consumer behavior. Suppose that real private consumption expanded byonly 4 percent per year, instead of the reported 6.5 percent. Mhen, withpopulation growth of 2.7 percent per year and the calorie demand elasticity ofo.6, total calories consumed ought to have grown by 3.5 percent per year, 1/instead of the 5.0 percent calculated above. This stil1 is a signficantlyposztive growth rate. Xence, hypothesis (1) does not solve the problem.

Hypothesis (2) is difficult to evaluate directly, but again somerelerant considerations exist. There is considerable skewness in the N±ge-ranIncome distribution, mainly in the rr-al-urban dimension. The average percapita incomes for all wmaufacturing and service sector income earners, 4n-cluding those who are underemployed and working at margi-nal occupa.-tons, wasover twice the average per capita income in agriculture in the 1960s,2/ and itis likely that the gap has -wdened since then. Hovever, increasing incomes inthe upper iacome strata sti'' are associated with increasing total demand forcalories. PLnstrup-Andersen and Caicedo, in the cited reference, estimate thedemand for some staples, but not all, begins to decrease with bigher incomesin the top two quintiles, but that total demand for calories continues to4-crease. S 4 M4 'ar results are implicit in data presented for M4exico by!lorto., 3/ except that total calorie demand per household (not necessaily percapita) beg-is to dec'l4 e in the top decile.

The Xgerian income di43trbution 4s not, know, but we may cons3tr,zcta sample scenario which conveys the Implications for growth in staple fooddemand of an unequal and worsening income dist-ibution. The scenai-o is

1/ Mhe calculation is as follows:1.027 1 4 (0.6) (.013) - 1 - 0.035

2/ 0. 0. Lapido and A. A. Ades3ii, "Income Distribution ti the RuralSector," i4- E. Beran and V. P. D_ejomaoh, eds., Mhe Poltltcal Econom-y ofIncome Dis3tetution in zaieria, Hqoles and 'Ae4er Pbli-shers, New Y'ork,19el, p. 317.

3/ R. D. Norton, "Fut-re Prospecta for Mexican Agrcult-re," M eSouthvestern Reviev of !tAmae=ent and Economics, vol. 2, no. 1, 1932.

- 70 -


designed to be plausible but extreme, so that in reality the trends InNigerian income distribution must be zo more unequal.

The scenario dividea the population into three income classea: thelowest 40 percent of the population, the next 40 percent, and the top 20pereent. According to Ahluwalia, Carter, and Chenery, 1/ in 1975, the incomeshare of the lowest 40 percent was 12.8 percent as an average in all middle-income LDCs, and 9.6 percent in all high-income LDCs. As Nigeria in the early1970a uas in the middle LDC group in overall per capita income, we vill assumethat the lowest 40 percent in Nigeria received 10 percent of the total incomeat that time. We assign 55 percent of the income to the upper 20 percent andthe remainder to the middle group. These assumptions lead to a per capitaincome in the upper 20 percent which is more than ten times the per capitaincome of the lower 40 percent. While there was a asmall number of very well-off households in Nigeria in the early 1970s, when viewed in terms of the top20 percent and the lower 40 percent, it is very doubtful that the Nigeri4anincome distribution was as unequal at that time, or even now.2/

-As regards growth in real private expenditures by stratum, we againmake extreme assumptions: the 6.5 perceat annual growth is decomposed into8.0 percent growth for the top 20 percent, 1.7 percent growth for the bottom40 percent and by residual, 5.5 percent growth for the middle stratum. Thisimplies the following growth rates in per capita real private cnsumptionexpenditure:3/

lover 40 percent: -1.0 percentmiddle 40 percent: +2.7 percenttop 20 percent: +5.2 percent

Th4i scenario implies a drop of ten percent in a decade in the real welfare ofthe lower 40 percent. While some observers have commented on the stagnation

21 M. S. Ah.Luvalia, R. G. Carter, and E. 3. Chenery, Growth and Povertyin Develoning Countries, World Bank Staff Working Paper No. 309,Washington, D.C., December 1978.

2/ The extreme nature of these assumptions may be seen in the fact thatthe implied Gizi coefficient ia 0.725. By contrast, the following Ginicoefficients were measured in the 1960s for countries known for theirunusually unequal income distributions: Brazil, 0.56; Xleico, 0.56;Colombia, 0.57; Peru, 0.59. (Source: M. S. Ahluwalia and H. Chenery,"The Economic Framework," in H. Chenery et al., Redistribution withGrowth, Oxford University Press, 1974, p. 42.)

3/ GWe have no basis for differentlating population growth by incomestratum.

- 71 -


of rural living standards and the consequent increases in rural-urban d_apari-ties, 1/ no one ha3 asserted that real welfare of the poorest 40 percentactually declined by a significant amount. Therefore, 4t is posaiblo to saythat these assumptions, takan together, are at one extreme in the sense ofgiving a lower bound estimate for the growth rate of demand for staple foodsin Nigeria.

The extreme nature of the scenario is compounded by the followingassumptons on expend4ture elaiticities of demand Sor caloriea: zero for theupper 20 percent and 0.6 for the aiddle 40 percent. Using total incomeweights by group, and a national average demand east4±C4ty for calories of0.5, the implied demand elasticit7 ror the 2.ower 40 percent is 2.9. However,for the case of declLni4ng per capita income, 4t is not plausible to apply anexpenditure elasticity of more than 1.0. In other workdd, if their income isreduced, the poor will not reduce their coas=mptioa of staple fooda propor-tionately more than their income is reduced. These assumptons are displayedtogether in Table t1, where population and incone both are normalized tn sumto 1,000. To complete Table 11, budget shares for the main foods providingcaloe es are included at levels suggested by international studies.2!

Table 11: A HY?OMETICAL INCO;IE DISTRI3BUTIONl SCESARIO

Yp Per Calorie 3udgetDemand Share for

Income Popu- Y Capita I Elas- Staple3Sra t, lation Income Income T P ticity Foods

I 400 100 0.250 1.7% -1.0% 2.9 .7ITI 400 3'0 0.375 5-5% -2.7 0.6 .5MIT 200 550 2.750 6% *5.2% 0 .2Nat'onal ICCO 1000 1.0 6.5% -3.75 0.5

aSet at 1.0 for decreases in per capita income.

'he hy-otheticnl data in Table 11 toget'her izp. that the dem-ad forcalor-es grows as 3.8 percent per year (1.1 percent per capita) when rea:

1/ See, fo- exam-ple, Peter Xatlon, 'The Structure of Production ardRural incomes in Northern 11ger-a: Results of Three Village CaseStudies," in H. 3_enen and V. ?. Die4omaoh, The Po'itL-al 3comon of

-ncome stribuo t 4or -igeria, Holmes and 'Ae:er .ub1shers, .2w 'rO-_,l981, p. 324.

2/ See, for exa=ple, c. Iluch, A. ?owe..l, and 3. 'i2."ams, ?atte:r-s iHousehold De-and and Saving, Oxford- Uiversty Press, 1977, p. 40.

-72 -


private conaumption expenditures are increasing at 6.5 percent per year.1/ Bythe nature of the assumptions, this would appear to be a lower bound on staplefood consumption growth, by reason of income distribution considera""'%ui, iftypiozl demand elasticity values are applicable. To be sure of this rea-soning, we may make the assumptions even more extreme: say, 9.0 percentgrowth for income in stratum III and 1.0 percent growth for inoome (-1.7percent per capita) in stratum I. This leaves income growth in stratum II at4.14 percent, and the consequent rate of increase in demand for calories is2.8 percent (0.1 percent per capita), still well above the reported figures inTable 2. However, tos3e last assUMptions appear to be out of the reasonablerange for Nigeria.

Although it is hypothetical, this exercise leads to the conclusionthat income distribution shifts by themselves could not have explained areporte decline in per capita consumption of staple foods. In fact, theaxercize suggeats that staple food consumption per capita should haveincreased by 1.0 percent or more per year. However, before accepting a con-clusion like this, other hypotheses need to be examined.

To recapitulate, the examination of hypotheses (1) and (2) revealthat neither one of them holds up as a Justification for the reported declinein per capita conasmption of calories and staple foods. So far, this examina-tion suggests that the relevant range of annual growth of per capita staplefood consumption for the past decade is 1.1 percent to 2.2 percent. In termsof total staple food (or calorie) consumption, this is 3.8 percent to 5.0percent per year. Production would have grown at a slightly lower rate, owingto the rapid increase of food imports.

The third hypothesis was that calorie consumption actually has=ncreased significantly but in the form of non-staple foods rather than staple

foods. It must be true that consumption of fruits and vegetables and poultryand meat is growing more rapidly than consumption of staples, for that is auniversal phenomenon under conditions of growing incomes. The question is howrapidly has consumption of non-atapl.s increased. To review possible changesin the composition of food expenditures, it is necessary to return to theissue of overall food consumption elasticities and growth rates. We .Wy posethe que3tion, what growth rate of non-st1 p;les consumption would have beennecessary to allow total calories consumed to increase at 3.8 - 5.0 percentper year, with constant or declining consumption of staples?

1/ The computation is as follows. The b'idget share gi- en staple foodexpenditures by stratum of 70 for strzat= I, 475 for stratum II, and 110for stratum III. These numbers imply shares by stratum in total foodconsumption of 0.20, 0.49, and 0.32, reasectively. Then, vith the percapita income growth figures of Table 11, the overall growth rate forstaple food consumption is computed from:

g - 2.7% * 0.20 z (-1.0% x 1.0) + 0.49 x (+2.7% x 0.6)

+ 0.31 x (5.2% x 0.0) - 3.8%

- 73 -

Amnex IPage 26 of 30

Previouslr, it was remarked that the avalab-le evidence suggests anoverall calorie demand elasticIty of about 0.6. Other studies suggest thattbis sane f6--re is approximately the exmendl-ture elasticlty7 for food ilageneral.1/ (If anything, the overall food elasticity is slightly higher.)Thus, we start w4th an aDparent food consamption growth rate of 5.0 percent,based on a population growth rate of 2.7 percent and a total real privateconsumption growth rate of 6.5 percent. If the per capita supply of staplesremained constant, then the per capita supply of non-staples must have growuby 4.9 percent per year, since the staples probably accounted for aboxt 55percent of the typical cons"uer budget in the 1970s.2/ If total staple foodconsumotlon. remaLied constant, then total' productioa of non-smaples rust havegrown by 11.1 percent aer year (8.2 percent ere capita).

This range of per ca-oita growth rates for total mon-staples - 4.9percent to 8.2 per-ent - imp1es expenditure elastici'ties o0 demand of 1.32to 2.22, which are too high, the latter far too high. The cited Fazel -2oellstudy for Gusaw contazis estimates *which imply a total non-staple demand

I/ Lluch, Powell, and W11" ams report the following e=ped-itureelastcities for food in developing countries:

Food De=and Per Capita GNP a' samuleElasticity . midpoint, i- 1970 1.S. S

Korea 1955-68 0.72 142Thailand 1960-69 0.84 148Pbilipn"-es ,1953-65 0.52 161Tai-a." 1955-68 0.57 216Jamaica 1959-68 0.58 541Panama .960-68 O.92 564South Africa 1955-68 0.80 596Greece 1958-68 0.73 676

(See C. Lluch, A. A. Powell, and E. A. WJil1'Jm, oc. cit., p*. 38, 54.)Nigecian per cap'a G2P in 1975 was about S 03, Un tT.S-S converted at theofficial exchange rate.

2/ if staples account for 65 2ercent of calorie i-take, then they mustaccou=t for a slIghtly sma7ler share of total food expenditures, si:cenon-sta-les are =ore expems_-ve per unit of caloria co=teat. Tf mor-sta=-es are 50 percent =ore eXse=si7e per calorie cons=ed, the= thestac2.e share of calloies of 65 percent translates into a 55 percezt shareof food expenditures. The orl2 detailed empirical Nigerian demand st3dyavailable to date tends to confirm this share: for farmers in the Gt-sauag-icultrall developme=t project, Hazell- and Roel. have computed a493.7 percent budget share for cereals alo-e, exclUding root crops (on thebasis of AP- G household survey data). This calculation Is reported inPeter B. B. Eaze' and Alnsa Foell, Bural Household Mxnend^tu-e Patternsi4 Malaysia and Niger-a, forthcoming research repor: of tne internationalFood Policy Research n-stitute, Wiashington, D.C.

- 74 -


elasticity of 1.13. In that same study, the corresponding elasticity forKalaysia iz 0.67. While some individual non-staple food products have highdemand elasticities, it is unik ely that their elasticity in the aggregatewould be much higher than 1.0. If It were 1.0, the implied growth rate ofconsumption of staple foods is 3.7 percent (1.0 percent per capita), approxi-mately the figure we have arrived at before in the context of income distribu-tional considerations. The implication for the non-staple demand elasticityof a constant total supply of staples is clearly unacceptable; the implicationof-a constant ner capita supply of staples is closer to being acceptable, butit stil1 appears to imply too low a growth rate of staples. Thus the diffe-rential behavior of staple and non-staple foods in the typical consumer budgetalso does not constitute a solution to the problem.

We turn now to hypothesis (4), that relative price changes caused ashift out of foods and into non-foods in the average consumer's behavior, or,more precisely, that pr4ce changes caused a reduction in the growth rate offood consumption. In order to analyze the effects of price changes, therelevant concept to use inz this context is a consumer price index. AsTable 12 shows, food -rices have in fact increased more rapidly than non-foodprices in urban and rural centers. For the period 1973-81, the food priceindex increased at an annual rate of 19.3 percent, while the overall CPIincreased at a rate of 17.9 percent. With a food budget share of about 0.6,the implied Inflation rate izn non-food items was 15.8 percent. Thus, foodprices appear to have increased more rapidly by 3.5 percentage points peryear. However, these figures.are not representative of food price trends forfarmers, for they refer to prices in raral and urban centers." For-farmersas consumers, the appropriate pr4ce (at least for part of the year) is thefarmgate price. Table 13 shows that farmgate prices for major grain cropshave decreased relative to the overall C?I, roughly by about 3.5 percent peryear 1/ over the period 1977-1982. This is thinly based evidence, but itsuggests that, for the nation as a whole, food pe-ces may not have increasedrelative to non-food prices.

For the sake of illustrat-on, le' us give more of the benefit of thedoubt to the urban-and-rLral center data in Table 12, on the dual grounds of alonger time series and aore complete commodity coverage, and let us supposethat food prices have increased more rapidly than non-food prices by 2 percen-tage points per year. This may be regarded as an upper bound estimate of therelative price change.

Price elasticities of food dema"d vary, but for au foods a va.le of-0.50 is more or less typical for developing countries.2/ A relative increasein food prices of 2 percentage points ;sr year would subtract 1.0 percentagepoints per year from what otherwise would be the gro-wth of food demand. If,in the absence of relative price changes food demand were to grow at a rate of

1/ Based on an uwneighted average for maize, millet, milled rice, andsorghum.

2/ Lluch, Powell, and Williams, on. cit-, p. 55.

Table 12. COMrOSITIl CONSUMII!R PUtICB INDIBX IN RUIIAL AND URADN CIINTERS

1973-L/ 1974-E/ 197S 1976 1977 1978 1979 1980 1981

All tcins 66.3 75.2 100.0 123.9 143.0 166.7 186.3 204.8 247.5

Food 60.8 70. 4 100.0 122.0 146.0 171.9 185.7 199.9 250.2

Drinwks 71.4 72.3 100.0 131.8 140.0 154.0 175.8 188.0V?/ 193.(

Tobacco ansd Kola 91.3 97.4 100.0 142.7 183.1 186.0 202.9 229.2 264.8

Accoiiiinodatiol, Puel f Light 91.8 93.8 100.0 108.6 127.3 131.4 166.9 170.4 173.2

Clothinlg 70.6 83.0 100.0 128.1 141.4 176.3 219.1 270.2 313.7

'rransport 71).3 91.8 100.0 116.1 141.1 158.4 195.5 197.3 2()1.9

Otlher rPircIascs 64.9 73.2 100.0 120.9 136.9 147.1 156.0 181.S 1941.6

Other Sorvicos 74. 3 80.4 1004. 118.0 143.0 155.7 177.7 23S.2 282.?

ltate of Inlfl;ation (i) 6.1 13.4 33.0 23.9 15.4 16.6 11.8 9.9 20.8

Constiwoiur price inelox In urban centers for lower income gtotlp.

iEstimato. B1scdl on welglhted average rntio betwccn food antl drink for January througlh Juno 1980.

Soiurcc: Federal Office of St IListics.

pii0FI"'I

0

Table 13. PAIIM-GATO PRICES

Milled PaddyYear CPI Maize Millet Rlico Rice Sorghwu Wheat

A. Indexes as reported

1976-77 100 199 159 380 224 1601977-78 117 171 171 393 180 1731979 330 145 162 391 213 145 2901080 143 190 154 499 239 140 2973981 173 245 233 613 281 220 2341982 206 315 3S8 541 332 245 272

B. Indexes base 1977

1976-77 100 100 100 100 100 1001977-78 117 86 108 103 80 1081979 130 73 102 103 95 911980 143 95 97 131 107 881981 173 123 147 161 125 1381982 206 158 225 142 148 153

C. Prices relative to the CPI

1976-77 100 100 100 100 100 1001977-78 100 73 92 88 69 921979 100 56 78 79 73 701980 100 67 68 92 75 611981 100 71 85 93 73 801982 100 77 109 69 72 74

Souirce: Mission estimates, blased on Informa.tion from the FOS and the CON.

0WlIH

- 77 -

Page 30 of 30

2.2 percent Der cazita (5.0 percent overall), ther this pzice eff ct -iouldreduce it3 growth to 1.2 perCent per capita, or 3.9 percent overal .. Again,

thls additional factor could reasonably have reduced the growth rate of food

demand (and hence the implied growth rate of food su-pplies) to the neighbor-

hood of 3.8 - 3.9 percent, but not as low as the rates implied by the

published statist-cs e-ven in Table 2.

There remains, of course, the hypothesis that the publishedstatistics are in error as regards trends. This would not be surpr_si-g,

given their apparent inaccuracy on levels of production. Sowever, beforereaching that concausion, it is necessary to ask -whether combinations of theother h7potheses could be at work. Some cauton- 3 is ecui-ed he-re, for the

hypotheses about a worsening of the income distibut ion and the more rapid

growth of the share of non-staples in the dCet tend to be causally related, soto add their effects numerically would be double counting. On the other hand,

the relative price effect is likely to be independent of the others and hence

additive to them in quantitative terms. But the relative price effect -was

ambiguous nu=e__cally.

How these various effects ars eva2.uated is obviously a matter of

Judgement, but it seems clear from the orders of magnitude that food suml_4ies

in Niygeria must have increased in absolute terms over the past decade. It

also seems protable that they increased in Der caoita terms, although perhams

not by very much.

Based on the considerations of this ser.rc..n this observer's judge-

ments would be as follows. The income distribution and non-staple food

effects probably did occur, and they were aostly overlapDing, 9o we shall

assume they jointly subttracted 1.5 percentage points 6roc the annual growth of

staple food demand, reducing it from 5.0 percent to 3.5 percen.t zer year.

Also, a relat ve price effe-t may havre occurred. C-iren the umcertaznt_esabout it, we Will assume that £4t as in force at half the previously est--atedlpper bound level, i.e., it subtracted 0.5 percentage p;'ot3 (rather than themax-m of 1.0 percentage joints) per year from 't-e food de=annd gowt-h aa.Allowing for compounding, these two adjust=ents reduce the staple food de=a=d

growth rate from 5.0 percent' er y-ear to 2.9 percent mer year -- or about

0.2 percen- per capita. This is a low growth rate per capita, but it hastyppified the ag-ricaltral experiences of many deve.opi=g countries over

extended periods. It- also is more plausiLbe than a negative per capita growthrate of food supplies during a period of rapid economic ep-ansion. This

coMclu3sion accords w'th some of the t:=e series in- Table 2. '- en prod-t-ionand i=norts are we±ghted by 4 '3 calorie content, both- the C93 and -t-e _S_Aseries show more or 'ess constant food supplies per cap-ia 6ro 19g75 to 1982,and slightly increasi=g food su:n7;es Der capita -rom 1973 to 1981. As afinal note, taking i-to account the rapidly increasin%g food i_norzts, theestimated food production growth rate oecomes 2.7 mer=ea: per year, o0 abouttero per capita.

- 78 -ANNEX IIPage 1 of 8

Methodological Note on Effective Rate of Protection

A. The Calculation of Effective and Net Effective Rates of Protection *

Traditionally, economic theory has focussed attention on the effects oftrade restrictions on the prices of final goods or outputs. Trade restrictionsgenerally take the form of tariffs, import and export quotas, licensingrequirements, and excise taxes. 1/ The impact of such restrictions is to drive awedge between domestic prices and the CIF prices or world prices of competingimports. The proportionate difference between the domestic price and world priceof a final good is the "nominal rate of protectione. More precisely, therelationship between the world price of a good i (P *), and the domestic price(Pi), may be expressed as;

(Pi*(l + di))Pi (II.1)

where d is defined as the nominal rate of protection. The nominal rate ofprotection may be expressed more directly as:

mi -? 2iiP- p* - (II.2)

If the only form of trade intervention is the imposition on the ith good of anad valorem tariff of rate t , and if this tariff is not prohibitive (that is thegood continues to be imported with this tariff), the nominal rate of protectionwill then be equal to the tariff rate. In practice, the nominal rate ofprotection will depend upon a number of factors such as excise taxes, quantitativerestrictions (i.e. import quotas, bans, and some licensing arrangements) inaddition to tariffs.

When intermediate goods are traded and are subject to restrictions, thenominal rate of protection provides only one aspect of the effect of interventionof producers. It is difficult to assess with any precision the relativeincentives given to economic activities based on nominal rates of protectionalone. The effective rate of protection attempts to take into account the impactof intervention in both input and output markets. Only when such an approach istaken is it possible to examine the relative treatment of different economicactivities under a given system of trade restrictions.

* For a more detailed discussion of the methodological issues underlyingthe estimation of rates of protection, see Bela Balassa (1971) andW.M. Corden. This section has benefited from these references.

1/ The nature of import duties, and other trade restrictions currently ineffect in Nigeria are discussed in detail in Section III of thisstudy.

79 ANNEX IIPage 2 of 8

We may characterize the technological opportunities facing producers ofsome goods, Qi' with a production function:

Qi - f(Ko, Li, Mi), (II.3)

where Ki L 4 , and M , are capital, labor, and intermediate inputs, respectively.In order to'be ableito make use of this relationship, it will be necessary toadopt a particular form for the production function. It will be assumed that theelasticity of substitution between inputs is equal to zero and that productiontakes place under constant returns to scale. The production function may then beexpressed as a linear function with constant input coefficients:

Q- A' L., +A" K + Al i (II.4)

' A, P+ + A P* (T 1. )i IL 1 +ki KZ + Ai iz

or P*'I+dd A U d1 + di -- AAU ?* (2Ad )

If we further assume that output markets are competitive (i.e. excess profits areequal to zero), this relationship may be expressed in terms of world prices.Where the d represents the extent of price distortion in the output and inputmarkets. IA will be assumed for the moment that all intermediate inputs aretraded.

The effective rate of protection is the level of protection given to thevalue added in a particular activity. More precisely, the effective rate ofprotection is the proportion by which valued added for an activity, measured indomestic price, differs from the value added that would be realized in thatactivity under world prices. Using equations (II.5) and (II.6), value addedmeasured at domestic prices may be expressed as:

Di Ai P1 iA P -F A P (11.7)li ki k i t.

or as:

Di - A3u P-* (1 + di) + Ai P (1 + dk) (.8)

- (l+di) - A P (1 + da)i i mi a

value added measured at world prices in the producti.,n of the ith good may beexpressed as;

E ' i Ak: P*k Ac * cII.9)

- 80 - ANNEX II

Page 3 of 8

Using these expressions, the effective rate of protection for the production ofthe ith good may be expressed as;

Di - wI. d- Ami P dm- D- P1~^ (IM.10)

If we assume for the moment that the only source of price distortion onthe output and intermediate inputs are ad valorem tariffs (i.e. d - t and d -tM), it can be seen from equation (II.10 that tariffs on intermediate inputs serveto reduce the effective rate of protection. In addition, it can be seen from thisexpression that measures of the effective rate of protection will be sensitive tothe level of value added at world prices. To see this, consider an example wherethe tariff on the output is equal to 50%, the tariff on the intermediate input isequal to 20Z. If intermediate inputs account for 9OZ of costs at world prices,(i.e. value added at world prices is equal to 10%), the effective rate ofprotection will be 320%. If intermediate inputs account for 20% of costs, (i.e.value added at world prices is equal to 80%), the effective rate of protectionwill be 58%.

An important consideration which has yet to be treated is the exchangerate used to translate between domestic and world prices. The exchange rate vhichwould result in balance of payments equilibrium is not independent of thecountry's trade restrictions. The structure of incentives directs resources intothose activities where it is possible for firms to realize higher levels of valueadded than would be the case under free trade 1/. The equilibrium exchange rateunder a regime with trade restrictions will be lower than under a free traderegime. If the exchange rate is permitted to adjust downward after the impositionof trade restrictions, imports appear relatively less expensive than if noadjustment had occured. The 'net' effective rate of protection is defined as theproportionate difference between value added at domestic prices and value added atworld prices at the exchange rate which would prevail under free trade.

In order to derive the expression for the net effective rate ofprotection, it is first necessary to restate the expressions for value added indomestic and world prices in domestic currency, reflecting the policy distortedexchange rate, pd, and the free trade equilibrium exchange rate, p. Actual valueadded at domestic prices may be expressed as:

D9'- pd P* (le+d) - pd Acir(l4dm) (11.11)

Similarly, value added in world prices at the equilibrium exchange rate whichwould prevail under free trade would be:

t pP*- pA3$> (11.12)

1/ It should be noted that the choice of a free trade situation as abasis by which to measure the impact of trade intervention does notimply that free trade is necessarily the optimal policy.

ANNEX II

- 81 - Page 4 of 8

The net effective exchange rate may then be expressed as;

D_ _ pd Pi (1I d )-d A P* ( + d)Z I P i ___ - P_ A 1 (II.13)

To illustrate the impact of recognizinig the exchange rate distortion,consider the previous example where P -P -$1.00, d -50%, and d -20Z. We set thepolicy distorted exchange rate at N0.0/V1.00 and the free trJae equilibrium rateat NO.75/$1.00. Then, for A - 0.20, which resulted in a 58Z effective rate ofprotection we obtain a net e!fective rate of protection of 5Z. Similarly, for A- 0.90, which resulted in an effective rate of protection of 320%, the net a

effective rate of protection is 180%. Therefore, it is clear that, by ignoringthe exchange rate distortion, estimates of the effective rate of protection wouldlead to overestimates of the extent of protection.

An additional issue in estimating effective rates of protection is themethod of treating non-traded goods. 1/ One method includes the value added inthe production of the non-traded inputs with the value added in producing thefinal good. This has been referred to as the "Corden method". 2/ The alternative"Balassa method" assumes that non-traded inputs are supplied at constant costs andthat the prices of non-traded inputs moves in proportion to factor costs. As isnoted in Balassa and Associates (1971), this is equivalent to assuming a zero rateof effective protection for non-traded goods. It is also noted in that volumethat the two approaches lead to results which tend to be quite similar. Theexpression for the net effective rate of protection may be restated to takenon-traded inputs into account. We continue to assume that A is the coefficientfor traded intermediate inputs while A and P are the input coefficient andnt~nprice for the nontraded intermediate innput. iet expression for the net effectiverate of protection may now be stated as:

p PPLp&A P* A Pt ant (tP.14)

There remains another question which concerns the location where pricecomparisons are made. 31 This issue takes on significance when transport costsconstitute an important component of delivered costs, as is generally the case foragricultural commodities. One approach would be to use the delivered price ofimports, to the producing region, Pi*(I + S ). Alternatively, the price of thedomestically produced goods transported to Lhe port (Lagos), P i (+Si), which is

1/ Note that in this study, where the analysis has generally focused onagricultural commodities produced using traditional techniques, thereare no non-traded intermediate inputs other than those used in thetransport of the commodities.

2/ See W.M. Corden (1971) and Bela Balassa and Associates (1971).

3/ These issues are considered in greater detail, although in atheoretical context, in James W. Robertson (1983).

ANNEX II

- 82 - Page 5 of 8

also an important consumption center, might be considered. In the first case, thenominal rate of protection would be calculated using the following expression;

p1 PI*(l+S1) P1d I " (l+S) - (1+S ) - 1 (11.15)

If the estimates we.e based at the port, the expression would be;

P (1+S1 ) P1(l+Si)d - L - 1 (II.16)

i t~~

If consumption is widely dispersed, as is the case in Nigeria, it can be shownthat d ' underestimates the appropriate value while d " is an overestimated. 1/Given Lhe lack of data for the geographic patterns oficonsumption, it has beenassumed that the mid-point between the principal port and the producing regionrepresents the most accurate point to make price comparisous. This leads to thefollowing expression for estimating the nominal rate of protection:

P _' (I 5S P*( + i5 PI.7

P. (I + .5S)

B. The Estimation of Welfare Effects Due to Intervention

In this study we have used the standard Marshallian measures of producerand consumer surplus in analyzing the welfare implications of intervention. Inthis section the methodology underlying these estimates is explained briefly. Tobegin, we borrow a diagram from Corden (1971) to graphically illustrate thesemeasures. Note that initially, it is assumed that there is no exchange ratedistortion. In Figure 1 an ad valorem tariff of ST/OS is levied on an importedcommodity. 2/ The domestic supply function is given by HH' and the demandfunction by DD'. The supply of imports, SS', is assumed to be perfectly elasticat (landed) price OS. The increase in domestic production is given by AA', thedecrease in consumption by BB' and the decrease in imports (previously equal toAB) by (BB' + AA'). Tariff revenues will be equal to FJVG.

The welfare effects of the tariff can be measured by changes in producerand consumers' surplus. 3/ Note that it has been assumed implicitly that there is

11 Note that the principal producing region for many commodities in theNorth also represents an important consuming region.

2/ In this analysis it is assamed that the tariff will raise the pricesof the domestically produced commodity and imports by the same amount.In general, when spatial factors are taken into account, this may notbe true. The impact of these factors may be significant, particularlyfor agricultural commodities in the context considered here. SeeJames W. Robertson (1983).

31 See Scandizzo and Bruce (1980) and Corden (1974).

- 83 -ANNEX IIPage 6 of 8

no divergence between the private and social valuation of the commodity. Theimposition of the tariff reduces consumption by BB'. The loss in consumers'surplus is equal to SLVT, but while the total value of the reduction inconsumption is equal to B'BLV, the social cost of this foregone consumption,measured at the opportunity cost of imports, is equal to B'BLG. The difference,equal to the triangle GLV (-LVT'), is the consumers deadweight loss (denoted DWL )due to intervention. Similarly, the increase in producers' surplus is equal to

Piice

D

0A A' B' B Qua:-ti ^-7

FiGURE 1 IZporzac'e

STJK and the producers deadweight loss (denoted DWLP) is equal to KNJ (-KFJ). Themeasures of surplus are the appropriate measures for welfare gains or losses inthis context.

To employ this framework empirically, it is necessary to have data fordemand and supply elasticities and the quantities of imports and domesticproduction. As noted in the text, data for demand and supply elasticities arescarce and of questionable accuracy. Using a range of estimates of elasticities,the changes in production and consumption can be estimated, in effect, yielding

ANNEX II- 84 - Page 7 of 8

estimates of A, A', B, and B'. The deadweight due to intervention can beestimated by; 1/

eLC- .5 (T-S)(B-9') (11.18)

rJP" .- S (T-S)(A'-A) (II.19)

The estimates of the changes in surplus resulting from intervention (denoted PSand CS) are obtained using;

CS - (S-T) 3-DDWLC (11.20)

PS - (T-S) A'-DWL2 (11.21)

In this case, where the good is imported, the loss in consumers' surplus will begreater than the gain in producer's surplus, by KJVL, reflecting the additionalcosts of the imported good. If the tariff revenues (FJVG) are in some way rebatedto consumers (i.e. through lower taxes, etc.), the net social loss, equal toproducers' surplus plus tariff revenues less consumers' surplus, will be equal tothe total deadweight loss, DWLP plus DWLC. The first round change in foreignexchange expenditures will be equal to the value of reduced Imports;

FX - S(A - A + B - B) (II.22)

It now remains to consider the effects of an overvalued (i.e.reflecting the official exchange rate), exchange rate. Previously, it had beenassumed that the private cost of imports was equal to the social cost (i.e. equalto OS in Figure 1). If the exchange rate is overvalued by some percentage thesocial cost of imports will exceed the private cost, which in this case may beviewed as a negative tariff. The social cost of the imported commodity,reflecting the overvaluation is represented by SX and the private cost by OS inFigure 2. The impact of welfare implications or an overvalued exchange rate inthis context may be analyzed in much the same way as before. Consider Figure 2,when a tariff is levied in excess of the extent of overvaluation.

Prior to the imposition of the tariff, production and consumption were A and B,respectively, reflecting the prevailing exchange rate distortion. The tariff,ST/OS, results in production and consumption of A' and B'. (Note that thead valorem tariff is expressed in terms of the distorted price OS.) The basisagainst which changes in surplus and estimates of deadweight loss should bemeasured is not the free trade norm levels of production and consumption at thedistorted official exchange rate but rather at the free trade levels of production

1I/ Note that it has been assumed that the demand and supply functions arelinear in this range.

-85 - ANNEX IIPage 8 of 8

and consumption corrected for the exchange rate distortion, i.e. A* and B*. 1/

Price

R W

Si - A A* A- - 8'B* Quan-ity OfImportable

FIGURE 2

Note that if the exchange rate distortion were not taken into account, theestimates of deadweight loss would incorrectly be calculated as KRJ and VGM andthe estimates changes in surplus would be 5RJT and SVYT. When the exchange ratedistortion is properly taken into account, producers' and consumers' deadweightlosses are equal to LWJ and BEK, which are considerably smaller than KRJ and VGM.Similarly, the changes in producers' and con8umers' surplus are equal to (SX)LJTand (SX)BMT. It should be clear from this that when the exchange rate isconsiderably overvalued, estimates which do not take this factor into account willbe significantly biased.

1/ Note that these estimates may be reached in two ways, by adjusting therate of tariff to reflect the distortion (i.e. expressing it in termsof OSX rather than OS) and estimating A*A', or by using the rate ofthe exchange rate distortion and estimating AA*. In the analysis inthis study, we have estimated net' deadweight losses and net' changesin surplus by first adjusting border prices to reflect the overvaluedexchange rate and then estimating production and consumption levelsfrom this tariff-ridden levels to those which would prevail under theadjusted exchange rate.

Tattlc I DISTRIBUTION 0? TlI POPULATION OF lllaEUIA BY AGE AND SEX

ARA Population m(d 1980 (thnissn,iiliL Percent DIstrihttlon SexGroup lfalus Feia.lea Tistal Malo.- Femnalo Total Ratio

0-4 8376.4 8317,9 16694.3 20.0 19.4 19.7 100.75-9 6402.1 6406.2 12968.3 15.5 15.1 15.3 59.910-14 5291.4 5315.0 10606.4 12.6 12.4 12.5 99.615-19 4355.0 4395.2 8750,2 10.4 10.5 10.3 99.120-24 3540.0 3607.6 7147.6 8.4 8.4 8.4 90'.125-29 2082.5 2964.7 5047.2 6.9 6.9 6.9 917.2 cn30-34 2416.7 2494.1 4910.0 5.8 5.8 5.8 96.9 H

35-'J9 201i2.0 2112.5 4154.5 4.9 4.9 4.9 96.740-4/4 1608.0 1759.3 344841 4.0 4.1 4.1 96.045-49 1367.9 1444.2 2812.1 3.3 3.4 3.3 94.7

50-54 1090.0 1172.2 2262,2 2.6 2.7 2.7 93.055-59 .846.3 933.4' 1779.7 2.0 2.2 2.1 90.7

60-6', 612.5 700.6 1313.1 1.s 1.6 1.5 07.465-69 423.7 503.9 927.6 1.0 1.2 1.1 84.170-74 271.0 336.6 607.6 .6 .8 .7 80.5

7St 213.3 208.6 501.9 .5 .7 .6 73.9

Total 41899.6 42832.0 84731.6 100.0 100.0 100.0 97.0

_ P~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-

FIE%ri4a may not atilt OXACLly to totals, iguie to rcundin3g,

Saturcus lJor1gl bunik population projectioui for Hlicarlai Poptalation and Ituman Reaourcoa DivInIon, 1980.(DtribuLion by oa anid ccx for 19110 tolen from UNI population projection for Ilgariala 1979).

.able 2 GIlOSS ODI4ESTIC rPOnLIucr BY INOLISIRIAL ORIGiN AT CIJRRENT PRICES /(1ilil luns of Nalrul

.. .... ................. ............................................................. 0. .. .... ........ ............ .......................... *,ww>

1074 1975 5076 1077 1078 5170 5000/b/ ,0s /b/ 1911 /a/

AUvintilaitro 4.042.0 6,873.0 8,104.0 6,073.0 8,330.0 8,081.0 9,620.0 10,137.0 10,707.0

1ImWo G OtiarryinO 8,007.0 4,660.0 6.707.0 7,900C.0 8,458.0 11,330.0 15,072.0 12,407.0 11,233.0*C1s164d PcAsrolakim 5,830.0 4,2710.0 6.106.0 7,072.0 7,56B.0 10,479.0 14.103.0 11,6513.0 10,321.0*ftllhs I45,sSUms 2-10.0 300.0 601.0 833.o 848.0 060.0 879.0 R94.0 912.0

Il5lfaCIu'flufljl 865,0 1,170.0 1,464.0 1,555.0 1,705.0 2.037.0 2,354.0 2,040.0 2,762.0

Util isIIG. 64.0 63.0 76.0 00.0 528.0 161.0 204.0 262.0 333.0

(1isil5lina 6 Conutrtic5loin 5,356.0 1,815.0 2,606,0 2,001.0 3,077.0 3,192.0 3,671.0 4,002.0 4,201.0

lgi-i)2l51rt Cormmunicualon 611.0 674.0 862.0 1,030.0 1,211.0 1,447.0 1,763.0 2,120.0 2,683.0

W5tolIusalu SARtall TI'ado 3,021.0 4,320.0 6.502.0 6,772.0 7,021.0 8,726.0 9,657.0 10,450.0 11,553.0

IIIIu: I 1(g 761.0 871.0 1,011.0 5,085.0 1,136.0 1,217.0 1,310.0 5,398.0 1,402,0

lilla sn,vi00V 411.0 G60.0 133.0 a60,0 090.0 I,dto .0 5,589.0 15205.0 1,470.0

tCove;wieaunt Sorvicta 0063.0 1,.33.0 1,403.0 1,877.0 1,568.0 1,748.0 5,a38,0 2.132.0 1,850.0

GlI5I' .%I f;eclo, Cost W.SSba.0 25,476.0 27,318.0 32,06H.0 33,A61.0 309,930.0 40,730.0 40,060.0 48,304.0....... ...... ....... ...... ...... ...... ...... ......

jl,iruck T.ites 216.0 250.0 336.0 36a.0 415.0 425.0 f3C.0 504.0 704.0

cmlli, l5apkut I5elcur 5B,aGO.0 21,725.0 27,654.0 32,420.0 '34,0J6.0 40,364.0 47,270.0 47,454,0 40,008.0...... ...... ...... ...... ...... . ...... . ..... . . ...... . . . ....

IaaaI.essay J0'J3.0 5.,510.0 2,515.0 2,380.0 2,633.0 2,097.0 3,233.0 3,642.0 3,664.0Snaviswuu 6,062.0 0,764.0 12,273.0 54,519.0 15,121.0 17,582.0 10,862.0 21,661.0 23,622.01IIaul nil (IM,I 12,813.0 17,507.0 21,212.0 24,000.0 26,003.0 20,460.0 32,546.0 35,347.0 37,983.01 aji,ig'.lic,-z 5'II 3 1,60o,n 11,711.0 15,046.0 17,633.0 15,640,0 22,357.0 27,046.0 252192.0 24,702.0 1

Nowm tatitill uaOtils U,9U2.0 0,714.0 12,273.0 14,510.0 15,121.0 17,502.0 10,602.0 21,668.0 23,622.0 H0OH

........... ...........................................................................---........................ r-

N51101S1:4C: 1 uLidll-01 6III ICu ot Stiat: ut Ia. ON/it/ IJ5ma up to 1OP)¢ Ia'o for Ibal yvaru. fur In«sassca 1073 r.sfurs tp flisca

, il' 9073/7-1 wllti:h Is f#isoa Arwil 1373 to U4aurcl 10714. Data iamy averlapi o.ittwit.n 59.u auiil 5i80 thdo to clLAaCgo froai t5lucal to calondor yoar.

// lif it rc sal iout sialoas./i / 5'tJv I u Inna I .

Tablo 3 CRtlSS OOMESTIC PRODUCT BY INDUSTRIAL ORIOIN AT CONSIAFIT 1977/7& pRicI /a/(MII11ons of Nalrn)

.i...**....,

1074 1975 1976 1977 £078 1979 90ao /b/ iga1/b/ 12/c/

AuVICUltidre 8,475.0 7,640.0 7,506.0 8,073.0 7,464.0 7,284.0 7,146.0 6,971.0 6,850.0

Uliilig & StQarrying 7,907.0 6,277.0 7,698.0 7,905.0 7,241.0 8,271.0 7,688.0 5,444.0 4,895.0-Criulo Potrolatus 7,592.0 5.873.0 6,979.0 7,072.0 6,449.0 7.513.0 6,915.0 4,720.0 4,172.0-lsI,oer Mininos 075.0 404.0 717.0 833.0 792.0 758.0 743.0 724.0 723.0

U.iitoRcturlno 060.0 1,107.0 1,464.0 1,555.0 1,778.0 1,009.0 2,245.0 2,608.0 2,508.0

Utilities 79.0 06.0 65.0 U9.0 £16.0 135.0 158.0 185.0 107.0

UIslclinui & ConstructIon 1,936.0 1,932.0 2,601.0 2,991.0 2,876.0 2,779.0 3,056.0 3,204.0 3,204.0

tieuiipoit & Ceauunicatlon 927.0 964.0 1,008.0 1,030.0 1,103.0 1,184.0 1,311.0 1,458.0 1,098.0

wloslo aaI Retail Trade 5,011.0 5,719.0 6,132.0 0,772.0 6,204.0 6,912.0 6,929.0 6,920.0 7,273.0

Ikna>lg SD999.0 1,047.0 1,0(6,0 1,011.0 1,078.0 1,077.0 1,092.0 1,100.0 1,121.0

0Gliur Sorvlcas 646.0 730.0 771.0 860.0 934.0 971.0 1,014.0 1,056.0 1,146.0 4.

0au"irntuont Servicas 943.0 1,601.0 1,641.0 1,67700 1,441.0 1,511.0 1,565.0 I,6I8..0 1,324.0

C.IP at Factor Cost 27,843.0 27,172.0 20,01.0 32,052.0 30,235.0 32,033.0 02,174.0 30,470.0 29,531.0._.............. ............. ............. ... ........ _ ...... .......... ...... .......... ._*....... .... .. O...

Iold'ect Taxes 411 0 390.0 387.0 308.0 384.0 398.0 407.0 411.0 430.0

cuP at Naerket Prices 2a,254.0 27,520.0 30,405.0 .32,420.0 30,619.0 32.431.0 32,581.0 30,881.0 29,981.0...... ...... . ... ...... ........ ...... .... . ....... . ... ......... ...... . ..... - B-----.. .................

MQiln I tCosIk11aUtssrly 1,335.0 I.M9i.0 2.161,0 2,7A88.0 2,570.0 2,687.0 2,988.0 3,232,0 3,231.0Survicos 10,441.0 12,068.0 13,262.0 14,519,0 13,752.0 14,5G9.0 15,123.0 15,547.0 15,272.61I*.lasoIl GOP 20,251.0 21,299.0 23.039,0 24,080,0 23,786.0 24,520.0 25,260.0 '25,75C.0 25,359.0Tradud GoOds 17.402,0 .15.104.0 10,76e.0 17,503.0 18,483.0 17.464.0 17.051,0 14,923.0 14,269.0Noit-tracUld aOOds 10,441.0 12,066.0 11,202.0 14,510.0 13,752.0 14.569.0 15,123.0 15,647.0 16,272.0 I

. _,,,,,........ ,,,,....,,,,............................................................................

0IIUILE: fedoial Office of Statlstics./a/ I)AIe Up to 1979 aro foti fibcal jears. For Instalio. 1073 reform to fiscal

yvar 1073/74 which Is from April 1973 to Narch 1974,- Oata may overlaplIsituoui 1979 and 1980 due to cliange from fiscal to calender year,

lbI Offical onl.ites.ce/ I'rovlbluboal.

1biul 4 GRO11SS DOIMESTIC EXPENDITURES AT CURRENT PRICES(1411 onsa of k)AIral

.. . . . . . . . .. . . . .. . . . . . . .. i........ ... . . ... .. . .. . .. . ........................... _0. . . _.

19'/4 1075 107B 1977 1978 19'19 loso/b/ goal /b/ 19t2 /C/

Exivirts uf Goods & 14FS 8,244.0 6,323.0 6,593.0 5,620.0 8,074.0 11.423.0 14.006.0 11,440.0 0,260.0

lalijirls of cooais S NfS 2,743.0 5,031.0 6,673,0 8,703.0 9.250.0 9.741.0 11;473.0 14,409.0 13,404.0

Gruas (omostip Invostoont 3,108.0 6.514.0 a,U76.0 0,02.0 0,086.0 9.580,0 11,666.0 12,051.0 12,340.0Id/2,956.0 5,030.0 0,107.0 0,421.0 0,36.0 0.0oa0.0 10.710,0 22.27.0 11,608.0

-1;u:1g.ii In Stoe:*is 212.0 404.0 409.0 601.0 500.0 600.0 500.0 073,0 042.0

Caaintlrp.imIoui 12,190.0 11,010.0 19,058.0 22,681.0 25,366.0 29,102.0 32.377.0 37.463.0 40,804.0*i'libliI 1,312.0 2,236.0 2,505.0 3,826.0 3,235.0 4,612.0 6,789.0 6,663.0 6,178.01Palv.iala 10,D07.0 13,6u3.0 16,473.0 10,855.0 22,131.0 24,490.0 26,565.0 30,010.0 34,626,0

Gill' .At "irkot Pericsi 18,868.0 21.725.0 27,654.0' 32,42n.0 24,076.0 40.364.0 47,276.0 47,454.0 49,008.0

'00molloo~~~~~~~~~~~~~~~~~~I1.,auO IltJuas

G,ruazs Owauatic Saviam 6.009,0 s,006.0 0,606.0 9,730.0 0,710.0 11.2G2.C 14,899.0 0.101.0 8,204.0 1tNlit i,cuIr Incr;ao -370.0 -173.0 -100.0 -'40.0 -146.0 -270.0 -277.0 -259.0 -939.0tul I rwi}ifffrs. -62.0 -70.0 -80.0 '119.0 -171.0 -234.0 -202.0 -357.0 -26L.0Ui'vacu lltlornial SA'.anmS 8,237.0 6,655.0 0,318.0 9,274.0 8,294.0 10,753.0 14,320.0 9,375.0 7,014.0Ga-4L. IJiul.1oeiaI Prou.akr 10,400.0 21,651.0 27,456,0 U2,074.0 03.931.0 40,094.0 46,900.0 47,105.0 48,0C6.6

SOlutIC:E: foulural Ol Ico of Statistics.i;l DaStio o1l) to 1070 aaro fai' fiscal yoars. . for lnstanco 1873 r4aors tc fiscal

y.-a u073/74 whuicho Is trois ApelI1 1073 tp llarch 1074. Data may ovoi lapIu.atwoah'm 1911 aid WOO diuu to chan9o tram tl ical to calonuor year.

/! fil icia l ObIlmoAfiY,

Pe/ I'a-ovistonal./st aff astilusals.,

ut7

N

Table 5 GROS5 DOMEtSTIC EXPINOIIUIIES AT CONSIANT 1977/70 PRICES(1U1111ons of Na3ra)

................ ................................... _._._.,................. b..__ _. ._.............. .... .... .^._........... _.... ._._.

1974 1975 1D,70 1977 1976 1979 9sPo /b/ 191u /b/, 1982/c/................ ....................................... ;.. .... .. .... ........... ...................... . ..... .XX........ .*,...... .. .........................

Expasrls of Goods * tiFS 81324.0 6,894.0 7,692.0 8,520.0 8,237.0 5,s956. 0,009.0 5,427.0 4,651.0

Iuports ot Goodas IiVS 3,306.0 5,547.0 7,271.0 8,703.0 6,001.0 7,232.0 7,516.0 0,369.0 9,210.0 /dOru:i% Dumostic Investuiont 4,409.0 6,628.0 0,871.0 9,922.0 7,295.0 6,074.0 7,025.0 7,649.0 7,545.0 /dl*11,od 4,097.0 5,985.0 8,273.0 9,421.0 6,831.0 5,646.0 6,657.0 7,055.0 7,152.0-Ihriji(ju In Stocks 312.0 643.0 498.0 501.0 464.0 421.0 468.0 594.0 093.0

Cnisiuw.ptIon 18.007. 19,6555.0 21,113.0 22,G68.0 23.080.0 24,621.0 24,063.0 26,174.0 26,978.0lPulIlIc 2,334.0 2 194.0 3,132.0 3.826,0 2,042.0 2,173.0 4,360.0 5,175.0 4,217.0*Privato 16,573.0 15,301.0 17,980.0 16,855.0 20,146.0 '0.,883.0 19,703.0 20,099.0 22,765.0

Gill' at llarhkot Pe'cou 2B.254.0 27,530.0 30,405.0 32,420.0 30,619.0 32,431.0 32,581.0 30.8o1.Q 29,051.0..... . ........... .. **... ..... ... .... ....... ,. .... .. -. .......... ................ ...... ..........

I1'uui. I bIoSGv'a.% Doniaotia Savings 9,347.0 7,976.0 9,292.0 9,739.0 1,531.0 7,810.0 8,516.0 4,707.0 2,986.0Nlt ractor Incoma -459.0 -191.0 -209.0 -346.0 -125.0 -200.0 -179.0 -146.0 -707.0 .

hluh Irt,nsfnrm -76.0 -06.0 -98.0 -119.0 -149.0 -174.0 -185.0 -202.0 -189.0 0

01u041 llat iu,nal Sayinga 8,812.0 7,605.0 8,985.0 9,274,0 7,257.0 7,430.0 8,154.0 4,359.0 2,090.0Groas lational Produict 27,795.0 27,339.0 00,106.0 32,074.0 20,494.0 32,231.0 02,402.0 30,735.0 29,254.0

SntIIWI: Feoiaral Office of Statistics./a/ I)ala up to 197 i.re for fIlhol years. For Instance 1973 refers to fiscal

,,ar 1973/74 which to from April'1973 to Marcih 1974. Onta way overlaphWnwooni 1979 auici 1980 due to cliango fror f lscal to calander yoar.

1b/ Oflical estimates./d/ Provislional.d/ Staff eulimalus.

°IH

- 91 -

ANNEM IIIPage 6 of 26

Table 6 GOVER1NMT ACTUAL EXP. ON AGR., 1976-82(IN MILLION, Cmu1RL9T PRICES)

1976 1.977 1978 1979 1980 1981 1982

FEDERAL G 113 179 91 235 316 356 423

REC. EXP 23 37 14 38 24 34 34CAP. EX? 90 142 77 197 292 322 389

STATE GVT 309 290 275 256 422 420 369

REC. EX? go 100 136 114 186 184 164CAP. EXP 219 190 139 142 236 236 205

TOTAL 422 469 366 491 738 776 792

EEC. EXP 113 137 150 152 210 218 198CAP. EXP 309 332 216 339 528 558 594

GRAND TOTAL 11060 13144 10724 13520 17210 18380 15820

#EC. EXP 4102 5264 4714 6436 7467 8138 8662FG 2040 2697 2314 3898 4267 4438 4562SG 2062 2567 2400 2538 3200 3700 4100

CAP. EXP 6958 7880 6010 7084 9743 10242 7158FG 5332 5939 4233 6108 8000 8030 5612SG 1626 1941 1777 976 1743 2212 1546

TOTZG T. 0.04 0.04 0.03 0.04 0.04 0.04 0.05

REC 0.03 0.03 0.03 0.02 0.03 0.03 0.02CAP 0.04 0.04 0.04 0.05 0.05 0.05 0.08

STAFF ESTILATES

labIa 7 BALANCE OF PAYVENTS /a/IMIIIons of US Oollarr)

............ .................................. 40 +..X_.............. ,_............... _.._....

1074 1970 1975 1977 1978 1070 1030 /b/ 191/c/l 1oa2/d/

Exports of (lcds & nts 99028 8,650 10.522 13,215 11.096 17,631 27.008 t8,611 12.657liii 0,017 7,746 9,44S 11.561 0,455 15,656 24,042 17;172 12.761urn-o I 692 56G9 678 aII 989 1.112 1.014 556 1t0NFS 219 336 309 942 665 864 1.050 793 726

Iuports of doad4 A nia 4,261 8.176 10.491 13,490 13,486 13.543 17.647 21,630 1S,7434i'ir,ds 2,440 1.887 a,o0o 0,962 .IO610 11,844 14.736 193,20 16,82aIJfS 1,712 2,270 2.431 3.536 1,876 1,609 2,013 3,449 1,904

Roisoursm fap 6.567 475 32 -214 -2.390 4,0a8 9,350 3,328 *5,oa8

Factor 'Service -591 -2aI 302 637 -I,097 -2,026 4,472 -2,I47 -1,8a2Inlt"est 38 460 305 324 -228 -44G -1.213 -663 -926Ollwr I'ivawoment Income -630 -741 6L88 *881 -869 -1.570 -3.259 -1,494 -1,056

Troisnlea (set ) .90 -127 -142 *185 -269 -283 -576 -667 -373 1

Oshisceo on Ctirreant Account 4.977 67 -412 -1.005 -3.757 1,674 4,311 -5,043 -7,341..... ; ...... ... ,;; .... - ".*. ... ...... ......

Olrcct forsomn Investment 28s 410 a40 052 211 303 -730 165 350

Nut NLT MorrowinO i19 73 32 34 1,097 1,034 65I all 756uisibarsgoanis 172 107 6t 96 1,449 1,007 1,13a 1,415 1,248Awort-tl zatiags -52 -34 -29 -60 61 *53 -487 -604 -490

Dillev Cnilal f##glt -4II -254 -452 -130 -101 10 134 409 496

Net errors and oianhglong Io/ 38 -24 59 48 36 417 189 -1,543 -570

1i.,arw e In Roucrvas I-) -4.907 -273 431 670 2,222 -3,440 4,545 6,200 2 t?4i.TT .. .. .. e.; D..i. ... .. C ..... -i

Arruars D)ooumnented (-) (-) (-) (-) (-) (_) (-) -) (2,95f )UndocumQnteA (-) (-) (-) () () (_) () () (1,0'94)

...........................

W1I1*IE: Coa.tral flai% of Nigeria./a/ Total m*ey 1,cgt aidd up due lo roundfnf. '

/b/Rovlewedl.."/c/Provisional./t/lfti8tlaated. %

/a/lncltldina valuactioni 1ains (lossies-) of US$70 million in 1978, US$532 million in 1979, US$177 million Inl980 cHUS$ -1,237 million in 1981. and US$ -199 million In 1i82.

Tatile 8 EXPORTS Of MAJOR Co11401ITIES

. ......... .. . ..... ........... ......... ._............... ...... .-.- **..---....X_ _..................

1074 1075 107d 1977 1978 1979 1980 /a lost lb/ 1982/al.......................................................................... .........................................

valtio 5,671.0 4.766.0 5.918.0 7,454.0 6,005.0 9,436.0 13,G32.0 10.534.0 0,604.0VoItilie 08.437.0 85,543.4 95,872.0 110,202.0 02,140.0 102,337.0 n.a. n.a n.u.

2!. CuicuaVsI to 159.0 1111.0 211.9 31.1 377.9 4a2.2 311.1 07.0 62.2voliawo 104.0 174.7 210.0 107.5 101.7 217.8 157.1 n.a. n.4.

3. Palo Kornolsval.lo 43.7 18.1 27.0 32.6 12.7 11.0 14.1 10.9 17.4Valuine 185.6 171.4 272.0 1086.0 56.8 50.9 40.6 n.a. n.a.

4 RilbIar(HNatural)V.ulu 33.2 15.2 14.4 11.1 12.G 13.0 14.1 10.9 9.6Vo1eil.a 61.3 60.0 34.0 27.7 30.9 34.2 31.0 n.a. I.a.

5. Guosau,.IuiuIValuo 6.8 1.0 0.2 0.0 0.0 0.0 0.0 0.0 0.0V0l&eme 30.3 0.0 1.0 0.0 0.0 0.0 0.0 0.0 0.0

U. Cocoa ButllerValulis 21.0 20.4 14.5 38.6 17.6 20.0 20.0 15.2 t3.9 Vol.inio 11.1 9.3 6.0 7.7 4.2 6.0 4.8 n.a. n.a. w

7. T1InViIliiu 26.4 20.4 15.5 13.3 9.4 10.8 14,2 16.4 nt.nvoliUIu 5.h 4.7 3.4 1.7 1.3 1.5 1.4 n.a. n.a,

U . I i LC I ISnuuhuaVbShIn l1449. 93.5 134.5 116.4 220.0 165.2 180.9 202.'4 27.8

Vnluu of Total Exports 6l!0 6I 511., 6 6 ,3, 1 l 3 tO 70a .7A.. 663... 133ftf0.3 14.1A6. t 8705

S11111ME: Cuntrgal lunk of Ni(Jdrla.V.alue: 4111 boms ut litra.V'111afto 1lilotisan&Is of Ions.n.a..: tlot Ava5laloiu.

/b/ Ad.Iijiused for tlla llalanice of pavinants. Co

3-1OH

Table 9 IMPOMTS BY ENO-USE4,.lilons of Nalira)

......... ........ ......... I ................. ".....,_ _...............................

1974 1975 19.76 1977 197j 1979 198 0 /a/ 100 8 /a/ 1982 /8

Cnnuiawur Goods 485.7 1,105.6 1,640.3 1,343.5 2,380.4 2,104.1 3,601.0 5,738.3 5.232.7

flJer&,bIe 129.4 331.3 459.5 538.0 697.0 620.4 809.6 1,576.2 1,004.6Il.m-d..wat 25366.3 768.5 1,080.7 1,305.6 1,683.4 1,483.7 2,792.4 4,160.1 4,228.1

Capitisl Ooodu A Raw Materials 1,170.1 2,612.0 3,404.7 4,573.1 5,821.9 5,357.8 5,484.6 7,170.4 7,2B2.5

C'apstai (tads 620.0 1,533,9 2,206.9 3,087.1 3,900.a 0,631.6 3,047.0 4,018.0 4,119.5RPis MiJteriala 560.2 978.1 1,287.0 1,485.9 1.912.3 1,726.2 2,437.6 3,152.4 3,163.0

1 scullanoums 10.2 11.2 15t0 6.4 9.4 10.6 9.1 12.9 50.3

TnInl 1,666.0 J,629.0 5,050,0 6,423.0 8.211.7 7,472.5 0,095.6 12,019.4 12.5665....... ..... ..... ...... ....... ... ... ... ...

~~~~~~~~~~~~~~~~............... ...... ............................ ^...... .............. .... ........ ,.... ...... ............ -.. ...... .............. ......

SoltJI: federal Office of Statstlasicand Central Bank of Nlgoria.

aa Ela tea.

to H

0%

ThblO 11 FURAL GOVERNMENT CUIRRIENT EXPEDITURES(ilillons of Nnlra)

....... ........................... ........................................... w.............. .......... ......................... ,,., .......,j, ....,,,,_,,,_,..

1974 1916 1976 1977 1978 1979 mO/a/ t10 3a/ 1902 Ibi.. ... ... ... ....,,, ............... S.,........... .... ........ ,,.............. .. ... I ..................... .................. ............................

Galiaaal Servtice 709 1.106 995 1,312 1.212 1.2tt 2,2i9 2,161 2,157.....---- ------.. ., ' ,,,..... . , . . .. ......... .... .... ,; -- ;,_.

l)u001imse a40 780 602 696 596 622 1,035 G2I t61)lltel sii 360 356 4 lb 616 616 744 1.184 1,436 1,416

ComahulV Ib Social Survicas 163 377 742 307 419 530 1,004 Itt t91. . . .. .. . ... . ... . ...... .. .. .. .. ......

Cdwea:tllvn 120 295 604 261 263 359 633 544 647l i.ih 29 70 03 lO0 a1 07 214 120 156

O£Il.jrs 5 12 48 36 70 f4 157 197 lea

gcnOiAC11aa 5Srvico. tOo 152 13t 222 lot 244 5d3 5tO 441

AfjlICU IIU 30 40 23 07 20 34 70 94 34Tu.usiort * Commnulcation is 23 27 37 29 44 64 69 54' )aI IrIac- lor t I3On 61 al f2 106 295 290 228tII |^ U~.w4 a 7 69 s0 00 164 127 124

Ikiiin.1aSi.£or.j TIranuaIsm to£05a1aes l 485 26 560 635 651 699 2 _

Intu0oat all IubtIc Dnbt 87 70 139 207 236 199 4i9 664 666

loenl /c/ 1,060 2,220 2.040 2.693 2,592 2.690 6.230 4,43B 4,302.... .... .... .... .... .... .... ...... ....

.... ....... .......... .......................... ,.....,.. . ..... ,,..... __ ... ........... .................. ...........

S1111116E: Fedooal Mliniairy of Flnance and staff uutimatos,/4/ ACzlisla bo tli tlbt ostloatem./o/ fle.allattary eOU1a1atWS././ A;liualtd for ponislolI and gratuities and contlnoanoals for the

yeiar 1980-62.

Io.H

OQ

0h0N

lublo 10 ;CCnIMOSITION (if IMPORTS CY COMMODITY SECTIONS(.ll l anu of Naira)

.................................................... .............. ......................................................................... _._ .. ........... j

1074 1915 1078 1977 1978 1979 1980/al/ 1901 la/ t982 //

0. Folid & Livo Anlanlss 141.3 283.0 425.0 604.9 1,0)20.7 166.5 1,437.5 2,t15.1 950.5

1. nwvraops & Tobacco 8.7 46.8 62.0 121.5 70.7 49.0 12.2 17.7 16.0

2. Cril.a UaateglsI.Ileamilble 70.6 77.0 77.1 98.7 109.4 112.1 156.7 201.9 390.7

3. molmirI ruGiB5 & Lubricants 53.0 97.8 171.9 117.1 174.6 20a.0 164.8 676.4 160.5

4. all .4 fila 3.4 8.7 24.3 42.B 73.3 52.2 115.0 123.1 114.3

5. Collo*icti 182.9 325.3 900.1 454.0 847.9 540.3 913.5 1.255.7 1,016.7

6. 14.su"smsclrerad 0aooti 501.0 983.7 1,116.4 1.42P.7 1,050.3 1.524.1 1.081.5 2,640.5 3,201.5

7. 14an:iulavy * Transp Equlpment 685.7 1,524.2 2,402.0 3,085.2 3.587.6 3.791.5 3,650.4 5,406.7 5,805.3

B. I4bs1-ull lint Art.lclus 109.1 271.5 365.3 46J.3 664.6 414.8 645.1 963.2 809.1

0. MiuoIll eronmactluna 10.1 11.2 15.0 8.2 13.8 14.3 29.0 29.3 11.1

lolimP: All Saciolis 1,666.0 3,629.0 50,C'0.0 6,423.0 8.211.7 7,472.5 9,005.7 12,919.6 12,566 6...... . .... ... . . . .. . . . . . . . ...... .. ..

.... .. ...... ........... . . .. ................ .............. ..... ...... .......... .............................. __. . ..... _ .

WIDIllCE: Cenlral Dank of NluerIa.

00II'n

0%

Iiblo 12 FEDERAL GOVER94IENT CAPITAL EXI'EIJOITURES /,a/(1l11i1onn Pt Hairv)

... ........... ... ............................................... , ,_........ _.. ,,,,,,,........................

1074 1976 1970 1977 1971 1979 isoo /b/ geat/b/ 982/0C/....... ............. ___Z. _..... __., , , _. . . .. . . . . . . . .. . . . . . . . .. . . . . . . .. . . . . . . . .. . . . . . . .

aunfuril Surviuas Jo8 1,153 1,159 1.126 779 2,110 I.OUI 1.270 1. 292

ieof.elluo 193 455 45S 5113 496 644 495 604 452(iIll S Its 6oo 704 563 283 1,468 6fiS 676 840

COis.u is9 I 5ervIces 245 221 505 567 437 496 692 1.226 766

IN), 1. fll us 167 2G3 202 121 04 293 469 14flaIaIa 40 27 221 216 172 360 309 716 567O II.,. .i 2 27 21 a8 144 54 10 41 26

S,t. lI *rvicgs 1So l01 621 349 246 629 711 813 665....... .......... _.*............_... ........... ....... _.... ...... .......... ...... ........... ..... ;........ ......

I fba'tI faallo 175 760 568 294 211 533 623 630 410flia- li 13 41 13 55 35 96 too 183 l8a8

(e;uws: 6iiC SorvIcos 610 9.555 2.601 3,469 2,457 5.539 4.173 0.530 5.896 '

#u uctl tisrM 103 174 00 142 00 322 240 412 531IEiutas.I4luInU * Uanullcurlnr 225 433 781 1.625 1,243 3.140 1.524 2,661 2,500lo.w..purt ro ConmCIcasIon 342 048 9.801 1.702 1,124 2.077 1.070 2.148 1.2a4OSIMI ,i 0 0 0 0 0 0 439 t.309 9,58I

1.u011gg1u.1 all SIAIes 165 307 417 424 314 640 304 2813 430ti143elltl Cu.nlrlbultlon I LS vWAig 268 112 55 4 143 175 31 319 672

1 %I 9 61 // 4.325 4.070 5,628 6,274 4.725 8a890 121058 8.056 7.341

~~~~~~~~~~~~~~~~~~~...... ............. ...... ............... __........ ... .... .............. . .............. ...... .............. ...... .. ...... .......... ......._

%WIIIICE: Federal I4lvlaisry of finance and staff es5ioltom./a/ 1amlasd@us rosservud apprnlzralionn of 192271 uIIIIcns In 1679. h

214-1 miI fmer. lit IUU I aufl I+ 2011 mal I I liss In 1002./Ab/ Ae:Ijil aird staff cotimJil./aL/ UIieeigl~Am Y Uh~9inA56U./i1/ Ipmgi'ltS.. a1ll amfoiaI of 11 UU5 islilloui In I01U anl t 0 I On8 millonln I')6 lot co.pi tal lIuiiissli of Jolnit Vuilturo EJCI iClIvi lu by MVPC.

N H

O HMs

ANNEX III-98 - Page 13 of 26

Table 13 : Tdex of Major Crops ?:od=cmion; 1976/77-1980 I/

(TIndex)

1976/77 1977/78 1973179 1979/80 l980

Hillet 100.0 113.5 98.9 85.1 65.4

Yas 100.0 75.0 72.2 64.8 57.3

Maize 100.0 81.5 43.3 45.7 36.8

Cassava 100. 0 80.7 72.0 8.0 64.0

R±ce 100.0 42.3 72.2 45.6 25.0

-- lons 100.0 81.5 64.0 51.4 50.3

Cocoya= LCO.0 105.6 58.9 33.3 26.8

G,o_mdnurs lCG.0 102.2 141.9 158.9 146.7

Cotton 100.0 43.5 82.0 60.1 44.6

Source: Daca provided br che Nigeri=± aucharit.es.

1/ Crop year Y-Apr±l.

ANNEX III-99 -Page 14 of 26

T a b L e 1 4 : RETAIL IIIICES ty EAW A CMsINair per metric too)

LAec lbae llorin Enq Iin Kadna Kane Uou bIldan florin Enqug lerin Kadun Kano

IT74 29Z "is 206 260 1^* 20X :220 ILLET

19"7 se2 e04 32e 268 Z2 3" is 17 21 2 a 0 1197e 59n 33 52h u 416 sn3 sss7 ° o 0 20 0 197? 664 me W^ 449 939 S26 oO8 1z7 0 a 322 S46 0 29? :537

9"e UR 337 m2 400 7 714 171 0 311 S25 441 o 5*1 SS2

1913 770 492 *01 916 50S UIN 717 197? 5e o 304 556 o 3m e41"2 *75 504 502 1033 ale 1145 700 lme 522 e o m a sit .19

601 t"l 735 587 S"

1sTs SS4 2> 215 231 235 247 nel 192 054 30 73S 552 36e1s77 433 330 394 426 323 371 482 a_LNT51T7 2lis 349 473 45 450 407 592 1976 7m 43 o 63e 67 526 60t

19m 410 20 375 29J 3" 322 470 t977 62i 0 521 &s7 762 31 692

sne u4 m ei 371 471 5S6 1*1 "9 n1 so0 76 157 624 966

1911 5 1292 1312 IM 1450 142S 3 13 i97 n 3 04 237 id 91 "a 743

19 s2 1033 130 1134 11S: 1o% Ing 132J I"o icol 1Q40 0 8on 1$40 00 17M

KIM u t 1961 1511 im tin 511 151t1976 537 640 470 S12 bsq 1big Im 140 1112 212e 827 1315

1977 43t 317 559 in 371 646 6CO.OIL

fi 4" 543 70o v24 397 7e7 iT7 1264 1'.5s 1245 1312 1312 11e2 101

19n 787 ut6 ue 03 *n7 ue 7J3 Ws7 110q 1O 1510 1410 Im IMO 1200

Jne n7 5s 7 939 1333 952 719 in 121e 125 146t 1291 1NOb li 1182Inl 1360 lihu 1147 1405 1342 12to Isis lqlq 1436 1409 1482 1427 1S45 1445 1173tn2 1070 DS 917 1395 1323 1172 ss13 ine isle 1364 o 140# in? 1427 1:02

NICE 7Fddv 1961 1454 S70 10eu 116 110e 1252 1405

1976 STI 55 623 Soo 50* 372 1"2 t471 00 1120 12,3 1259 1241 1316

1977 671 SP 525 st2 54r 59 P LN OIL

1m 809 635 sis 754 551 6p 1976 945 in7 "I 412 PA 1173 "tIm7 731 703 36e 723 sio 694 19n 9 s U4 mm2 m: n is5 oi

eo 1e12 us 992 toc 1040 P7 *11 IT71 1200 114H 13S *a5 lal 1402 1273

in 1 2u77 1m5 INS 1037 15^0 1t79 t33 1100 11.m too loll 1435 1136

i2 U1U 1211 1141 1415 1e4 Ills lw 1436 1127 o *e4 10N2 1409 IMs

K si to 1911 1494 1382 131b III& 1277 14s2 1544

1976 413 256 343 294 34o 331 Z6 I 12 1472 1477 1414 e 1424 1443 1541

It" 527 333 *"* 432 *:7 424 472--------Imn 747 561 623 qeX n22 9 *4* S7 ~~~- - ---------- ------------------- ~ ~~~~~1n 701 401 *** 624 749 n2 517 Ito IRI1i of Dole Oil I esrewt oilll .lLatre

In1e 797 436 739 631 ?72 a 634 Ilt available.

1In1 1>2 1733 ,'447 1643 = 1397 Sourc;': Fos

IMs 1oB 1157 1607 1447 1463 14n I 4 w

197 312 246 21 242 437 23 247

1977 *11 369 zn 3,1 36 Ut 314Im 425 315 no0 431 294 342 3u197 *" Su 302 431 "2 2% 359190e 5t 422 321 469 *5 aso *13

["I bo 4U 5U8 1560 It 5N0 t40i2 bd 43r 317 10W 760 *sX US

117 e 249 291 26 0 [91 10it" 4eJ 2" 576 574 0 271 242in 436 29 352 3p o m3 32it" in 74e 2e 522 0 2m 297190 As* 77Sb 9 0 301o 276

- 100 - ANNEX III

Page 15. of 26

TAKE 15 ETAIL PRICE RUTIS BY 3 * CROM(Taking Uian markets as reference points)

LAW Ibadan liwrn a ug join Kaft lan a X

Im4 1.31 1.00 0.9n 1.21 0.77 1.33 1.02 1974 0.00 1.24 1.47 1.34 0.00 3.00 0.9I37 1.4 1.00 1.01 0.1 0.o: 3.20 1.18 tm7 1.4U 0." 3.39 1.1 0.00 1.00 03.91971 1.49 1.00 0.92 1.41 3.13 1.04 3.*5 1973 1.37 G.E 1.04 1.59 0.00 3.00 C."197 1.94 1.00 0.7 1 1.33 1.13 o.r 1.0 1979 1.55 :.S2 O."5 1.74 0.00 1.00 1.001m 2.04 1.00 0e. 0.00 l.St 1.15 2.12 930 1.1St 0.90 0.00 1.95 0.00 1.00 0.9291" 1.33 1.00 1.33 1.34 3.23 2.24 1.44 193 0.00 0.00 0.00 0.00 0.00 0.00 ooI12 1.93 3.00 3.35 LO2 1.*1 2.:7 31.5 I32 0.00 0.00 0.00 0.0e 0.oo 0.00 0.00

lii ZILLET1974 1.33 1.00 1.21 0." 1.00 1.05 1.23 1974 0.00 0.00 I.0t 1.43 0.00 1.00 L.071977 1.31 1.00 1.39 1.29 0.9 1.12 1.4U 1977 0.00 0.00 1.12 1.21 0.00 1.00 0.13197 1.46 I.0 1.34 1.33 1.31 1.17 1.70 1978 0.00 .34 C.90 1.22 0.00 o .00 0.921979 3.52 1.00 L41 1.0 1.22 1.20 1.75 1979 1.59 0.00 0.30 1.3 0.00 1.00 1.71193 1.44 1.00 1.44 0.00 1.10 1.53 1.74 19o 1.41 0.00 0.00 1.e3 0.00 1.00 0.n21311 0.74 3.00 1.02 0.9 1.13 1.10 1.23 I"3 1.25 0.00 0.00 0.00 0.00 3.00 1.02193 0.79 3.00 0.39 3.17 2.34 1.02 3.02 1932 1.55 0.00 0.09 1.33 0.00 3.00 1.01

'lCE eatt GRJI J1976 0.00 0.34 0.00 1.20 1.05 0.82 1.00 1974 1.39 0.87 3.00 1.20 I.13 1.00 1.141977 0.00 0.77 0.9! 1.00 1.l3 1.02 1. 1 1977 0.9 l.32 0.33 1.04 1.21 1.00 1.101071 0.00 0.71 0.00 3.00 1.31 0.81 1.00 1973 1.52 1.44 0.3 1.23 1.37 3.00 1.55'97 i.7 R. Am a7 a. IA t .e I 1. tv 7 1.50 0.5 3.40 1.01 1.50 L.0O 1.1319o 0.32 0.57 I.02 IWO 1.0 1.44 L. o.7 190 1.59 1.54 0.00 1.29 1.97 3.00 3.15

1"1 2.95 0.00 2.3 2.21 0.00 3.00 2.9°t1 0.97 0.63 O.32 1.00 0.96 0.84 3.29 192 1.U 0.17 1.34 1.55 0.00 1.00 1.5992 0.77 0.dA 0.71 1.00 '.915 0.84 1.09 RM1

RICE nw 1976 i.07 1.04 1.05 1.17 1.13 1.00 0.921974 1.02 0.39 1.08 1.00 O.00 0.7 a.9 1977 0.31 3.03 3.17 1.09 1.04 2.00 0.92:77 1.17 0.93 0.9 3.00 0.00 0.94 1.02 3979 0.93 0.5 0." 0.so 0.3 1.00 o.a03979 1.07 0.34 0.75 1.00 2.00 0.n3 0.93 39! 0.9" 0.98 1.03 O.99 0. . 1.00 O.J1X9 1.04 0.93 0.'7 1.00 0.00 0.77 O..t 1990 1.04 0.9 0.00 0." 0.93 1.00 O,I'3 0.95 0.9 0.94 1.00 o.99 3.95 0.3 loll 3.1e 0.49 0.97 0.S9 0.33 1.0 I S.1:

1933 0.71 1.01 0.00 1.00 0.00 0.'4 1.1 t"2 L. :9 0.49 O.9 O.93 1.01 LOG 1..I152 0.79 0.85 0.13 1.00 L.OO 3.73 0.79 PCLIIOIL

DEUS wtit 1976 0. 0.F !.ul 1.00 0.97 1.19 1.013974 1.31 3.00 1.:4 1.1! 1.33 1.2t 1.02 :977 1.-5 1.14 1.17 1.00 1.16 1.2 1.101977 1.51 1.00 1.44 1.30 3.37 1.27 1.42 1079 3.27 1.21 1.41 1.00 1.27 1.57 3.;539?3 1.35 1.rA 1.45 1.59 1.63 1.23 1.12 979 1.51 1.2 1.25 3.00 1.13 1.42 3.:61309 1.43 1.OC 1.74 1.54 1.7 1.43 3.29 lOqEl 1.3 1.'4 MAg t. ' 1.19 1 1 1t. log 1.73 1.00 1.4 1.:a 1.49 3.39 1.9 !"I I.34 1.Z4 1.39 1.JO 1.:4 1.30 I.S383033 0.00 0O 0.J0 0.W0 0O. 0.00 0.00:e92 1.:Z 1.00 1.38 1.35 1.2'1 I.:" 3.27 192 0.00 10.00 0.00 10.00 *0.00 w0.00 *0.00

RANE196 1.i1 1.03 1.00 1.02 1.14 1.0 1.4 --------1977 1.47 5. !.0o :.43 1.2 1.20 1.13 Not. :the value :to :n4icmtn that data re not awaIla.lh.1973 1.4 0.92 0.94 :.2& O.U 1.30 0." Sarci : fO51979 1.44 1.14 1.02 1.54 2.30 3.00 .21130 1.54 1.23 O.9 1.42 1.19 1.00 1.'o1l1 1.19 0.31 0.41 2.74 1.5) 1.00 0.7I93 1.47 1.01 0.15 2.40 1.41 1.00 I.33

-101 - ANAEX ITIPage 16 of 26

Table 16 AVEML'GE RETAIL PRICES BY CROPS(Raira per Metric tonI, Current-Prices)

1976 1977 1978 1979 1980 1981 1982

Yam 234 340 445 4i34 4W7 755 833Gari 263 394- 466 353 377 1324 1196Rice (-.*ite) 430 479 571 688 889 1350 1202Rice (paddy) 484 495 563 570 972 1355 1194Beans 320 447 759 611 665 1554 1427Mqaize 280 371 353 417 444 706 611Sorghum 110 276 327 372 270Hillet 133 170 253 340 253 640 675Groundnuts 513 675 796 1046 898 1207 1011

Groundnut Oil 1247 1319 1313 1388 1190 1183 1213Palm Oil 987 872 1226 1156 1031 1369 1454

Source: Table 14

Table 17 AVERAG- RETAIL RICES BY CROPS(Naira per zoecric Ton, Real 1977 Pr-ces)

1976 1977 1978 1979 1980 1981 1982

Yam 289 340 387 336 287 439 450Gari 325 394 405 274 263 770 646Rice (white) 531 479 497 533 626 785 650Rice (paddy) 598 495 490 442 685 788 645Beans 395 447 660 474 468 903 771-aiLze 346 371 307 323 313 410 330Sorghum 210 276 284 288 190 ...

lUllet 164 170 220 264 178 372 365Groundnuts 633 675 692 811 632 702 546Grcundnut 0±1 1540 1319 1142 1076 838 688 656Palm 0il. 1219 872 1066 896 725 796 786

QT'i 81 100 115 129 142 17J 185

Source: Table above.

ANNEX III- 102 - Page 17 of 26

Table 18 SuTBSIDY/TAx.ON =ORT caoPs. 1977-82(IN FINANCIAL TERMS)

COMMODITIES U 1977 1978 1979 1980 1981 1982

COCOAPRODUCER PRICE N/MT 1030 1030 1200 1300 1300 1300MARK. & TRANSP N/NT 169 368 384 390 401 401

SUB T N/NT 1199 1398 1584 1690 1701 1701E XPOR v N/T 1885 2095 1980 1429 1262 1174SUBSI!ITAX N/MT 686 697 396 -261 -439 -527PURCHASES TH/T 183 161 145 107 184 107TOMTL SUBSIDY N/NT 129 112 57 -28 -81 -36

SEE COTTON

PRODUCER PRICE N/NT 330 330 330 400 465 510MARK. & TRANSP N/NT 198 198 211 211 224 224

SUB T Nf/T 528 528 541 611 689 734EUpORT uNIT v N/T 409 423 510 483 483 483SUBSIDYITAX N/INT -119 -105 -31 -128 -206 -251PURCHASES TElT 117. 117 117 81 78 36TOTAL SUBSIDY N/NT -14 -12 -4 -10 . -16 -9

PALK KERNELS

PRODUCER PRICE N/NT 150 1SO 180 200 230 230MARK. & TRA SP N/NT 84 128 137 1SS 161 161

SUB T N/NT 234 278 317 355 391 391EXPORST NIT V N/NT 194 218 284 168 174 157SUBSZDY/TAX N/NT -40 -60 -33 -187 -217 -234PURCHASES TN/T 173 240 231 189 194 172TOTAL SUBSIDY N/NT -7 -14 -8 -35 -42 -40

RUBBER (LnMP)

PRODUCER PRICE N/NT 530 365 420 485 600 700MARK. & TRANSP N/IT 183 393 402 402 411 411

SUB T 1MS/ 713 758 822 887 1011 1111EXPORT UNIT V N/NT 455 429 553 706 777 777SUBSIDY/TAX N/NT -258 -329 -269 -181 -234 -334PURCHASES TE/T 25 22 21 21 20 21TOTAL SUBSIDY N/NT -6 -7 -6 -4 -5 -7

GROUNDIUTS (SE.)

PRODUCEE PRICE N/JT 275 290 350 420 450 450MARK. & TMNSP N/NM 112 112 137 131 147 147

SUB T N/NT 387 402 487 557 597 597EPOER UriT V N/NT 300 358 322 349 366 268SUBSIDYITAX 'Vi/ -87 -44 -165 -208 -231 -329PURCHASES TBIT 5 0 is 13 2 1TOTAL SUBSIDY NI/T 0 0 -3 -3 0 0

GRA TOTAL SUB. N/NT 101 78 38 -80 -144 -113

SOURCES: NIGERA NON-OIL WPOR:T PROSPECTS, REPOI:R N 3771-UiNNIGERIA GucLUuRAL SECrOR REVIEwi, REPORT N 22181-UNICENTRAL BANK OF NIGEIA

- 103 - ANNEX IIIPage 18 of 26

Table 19 SUBSIDY/T.LY ON EXPORT CROPS, 1977-82(IN ECONOIC TERMS)

COMMODITZS UNIT 3 977 1978 1979 1980 -1981 1982

COCOAPRODUCER PRICE NIX: 1030 1030 1200 1300 1300 1300MARK. & TRANSP N/MT 169 368 384 390 401 401

SUS T 1/MT 1199 1398 1584 1690 1701 1701EXPORT MNIT V M/IT 2271 2524 2386 2013 1777 1654SUBSIDY/TAX 2/NT 1072 1126 802 323 76 -47PURCHiASES THIT 188 161 145 145 184 107TOTAL SUBSMDY N/VM 202 181 116 47 14 -5

SEED COTTON

PRODUCER PRIcE N/HZ 330 330 330 400 465 510MARK. & TRA.NSP N/ZT 198 198 211 211 224 224

SUB T NrMT 528 528 541 611 689 734EPORT UIT V N/NT 493 510 614 680 680 680SUBSIDY/TAX N/.T -35 -18 73 69 -9 -54PURCHASES TH/T 117 117 117 81 78 36TOTAL SUBSIY NX/T -4 -2 9 6 -1 -2

PAL mRLNELS

P3ODUCER PRICE N/HZ 150 150 180 200 230 230HARK. & TRQMSP N/HM 84 128 !37 155 161 161

SUB T NT/ 234 278 317 355 391 391-EXPORT UNIT V N/NT 234 263 342 237 245 221SUBSIDY/TAX N/m= 0 -15 25 *118 -146 -170PURCHASES M8/T 173 240 231 189 194 172TOTAL SUBSIDY N1NT 0 -4 6 -22 -28 -29

RUBBER

PRODUCER PR.CE N/XM 530 365 420 485 600 700&CL(. & TNPJISP N/Hr 183 393 402 402 11 411

SUB T N/NTZ 713 758 822 887 1011 1111EXORT UNIT V XIMT 548 517 666 994 1094 1094SUBSIDY/TAX N/Hr -165 -241 -156 107 83 -17.PURCHASES T8T/ 25 22 21 21 20 21TOTAL SBSIDY X: -4 -5 -3 2 2 0

GRMUND ;DUS

PRODUCER PRICE Nl/N 275 290 350 420 450 450YAM. & TRWASP WMT 112 112 137 137 147 147

SUB T NI/.I 387 402 487 557 597 597EPORT UST Y N/V I 361 431 388 492 515 377SUISIDY/TJAX N/NT -26 29 -99 -65 -82 -220PURCHASES TN/I 5 0 18 13 2 1TOTAL SURSiDy N/X 0 0 -2 -1 0 0

GRAD OTAL SUB. Nl/XI 193 170 126 31 -13 -37

SOUICE: TABLESTANDAD CONVELSION FACTORS 'OF .83 &o 7t JERE USTD FOR THE PER OD 1977-79ANID 1980-82 RESPCVELY.

ANNEXIII-104 - Page l9 of 26

Tae 20: a = IDE mG tiQ IWNa, 979

K.d Wegt Lou__Pmod. CG . Tqots Forea TIif Pzcow CCMr P=ozcn CtuIr

r.) aa e aot 0 ot s0 S1 lb Nl Nl Ns l

cue 1: 9zpply Klasticty - -1,D d ML&td - -. 25

ihIze 19 -SD -6 1o -1 - 1 28 -33Rim -7 50 57 -23 6 _ 2 -25 70%am:t -1 43 44 -6 - 1 -1 33&ozzdzts -10 26 36 -18 5 - 1 -4 43

nottm -5 22 27 -49 8 1 - -31 48Sagha 152 -381 -533 79 -20 5 13 226 244b07a -- 1 (-9) -31 - 6 1 -226 12Dzbbr -2 2 &-4) -6 - - - -22 10

TOncl 138 -287 -451 -44 -2 12 19 -95 -61

Cm 2: Smplv ELacicic - .45, Dzd Elwddct - -. 75

hize 86 -151 -237 36 -5 2 3 27 -35LMe --31 lS 181 -72 18 1 6 -26 66

TIar -2 129 131 -18 - - 3 -1 31Qoradinr -46 77 123 -63 16 2 3 -46 41Comcc -24 66 90 -162 27 3 8 -34 42soEgm 685 -1,142 -1,827 270 -69 23 39 208 -235

*oa -38 4 (-42) -133 - 27 3 -247 10R-bber -6 7 (-IS) -21 - - 1 -23 9

TOiRI 622 -860 -1596 -163 -13 58 66 -142 -71

Scurc: N1Srla - An Ak9lysis of A iozi£ira1 Trade and B&bud Mbidis, Worl Bawk (hid.c Cawrknz), Ah= 15, 1983.

NotIs: 7br frs in porascum tor to aro. 7 hy (-) indires dht th value lnabsoluce caz ins elrba diL or l ss m untry.

ANNEX III

-105- Page 20 of 26

Tabe 71: GC! lIE aM M WEM :r nM' rl..T 1.980

Da 1eiahc loss l1usProd. C,S. li;orts Foreign Tariff Prodicer Comr Pr :cer C=oS1me

(Expors) E=hange !evemeaso Ooc oco sm ab ra N92 FM

Case 1: Snolv Elasicitr' - -I. De Eascicv -. 25

.tam ;38 -104 -142 23 -3 1 4 55Rice -9 55 64 -32 8 1 3 37 91wlear -1 74 75 -11 - - 2 -I 59Gramd=rs -1li 29 41 -18 4 1 1 -42 40Cocta -3 15 18 -40 6 - 2 -20 38ScrgDm 125 -314 -439 73 -18 3 8 2M0 -21lCocoa -5 4 (-9) -23 - 2 1 -105 29Ribber -3 4 (-7) -11 - 1 1 -36 is

_ocal 130 -237 -399 -39 -3 9 22 88 -2

Case 2: Sucolv Elascicir-v .45, DerL EMast±c±Ltv -. 75

:Ize 171 -312 -(83 77 9 7 12 50RUce -39 t66 205 -L02 25 2 10 -39 84

'ar -3 221 224 -32 - - 6 -1 56Gramdncs -52 86 138 -63 1q 2 4 -44 37CmErcn -13 46 59 -128 20 - 6 -21 34

orh 563 -1 -1,504 Z54 -61 16 23 190 -227CO=oa -24 12 (-36) -91 - 8 A -111 263bber -13 11 (-24) -39 - 3 3 -39 1 6

local- 590 -711 -I42 -124 8 36 68 -15 -48

Smrce: Mmeria - An A;aiLvsis of Aeimau1iral Mrode ard Sabs±dv cblicies, WorId Bank (Qce CoverReport), Aiisc 15, lM83.

: fL~res in parer±6ses 3r onFs n c:or5s. he hypbel C-) H 4-.ctes cr "he value inabo]ce cers is eidr nil or les ±a unicry.

- 106 - ANNEX IIIPage 21 of 26

Table 22: BN;M: CM M0 G W WEsZr D&JrIO, 1981

Dmd Weldc Tms s_ ousPad. ca: T94=s Fc TB-+sff P:d C m rzc ar r ns

(ER==) Re Ma e or occ Ha %- % Hn %

Cue 1: &aolv fdEjSr'?_- -1. Ded EasHrc7 --. 2S

M:ze 18 -54 -72 12 -1 2 5 134 -164tLce -5 36 41 -23 5 - 1 -21 61TQ3ear -1 61 62 -8 - - 1 -1 47Gcozxb= -2 6 8 -4 1 - - 9 gCtwx -1 4 5 -9 1 - - -3 9S=gt= 556 -1,89 -1,945 323 -71 52 1i9 770 -951-b= -I 1 (-2) -3 - - - -11 4Rbber - 1 1 K-2) -2 - - - -5 3

TocaL 563 -1334 -L905 286 -65 54 136 854 -982

Came 2: Siwlv ELticitv- .45, De-. Elastlic-4v --. 75

;ze2 83 -162 -245 41 -4 7 14 128 -174R-ce --2 LW 131 -n 16 1 3 -21 2Bu:= -3 183 186 -26 - - 4 -1 44

GkOM&its -10 17 27 -L5 3 - - 9 9COC: -2 12 14 -29 E - - -3 8S=&Il= 2,50 -4,167 -6,667 1,107 -243 233 388 589 - 1,209Ca -4 2 (-6) -11 - - - -11 4Rbber -3 2 (-5) -6 - - - -5 3

Toral '.539 -4004 -6565 989 -224 2471 409 667 -1,257

Scairce, Niwl~a - An Amavsls of Aercult=a T=Me and Suxbsidy %Ucie, Ubrd Bak (lwxe Couwiapr), Aas~5, 1983.

.4res: 7fl Pg=ee vnw efer co ce==. -b hyp (-3 ! -s cai nahsolzur ce= is eibedr rnl or less hn umt3r.

ANX III

07 Page 23 of 26

Tble 24: aQM F( EkRE TM NOi W1 B I PBESL O FW -2

Dea dghtc Lxs SizPhm?kd. can. mwoms Fo,ei brlf fr dm Pofcer CkfP W

)) Fww RemCOt oCk COOt s l NM NM NM NM

Cue 1: SislY EvInSClEtr -1, ODe Elastic.r - -. 25

Pm 19 66 47 14 13 - 2 35 -5110 -61 -71 28 -66 - 3 39 -104

Who= 1 -51 -52 11 42 - 1 2 44Q uzmacs 11 -26 (37) 14 -4 1 1 42 -41GCox 1 -5 -6 5 10 - - 7 -16Saqm 110 -335 -44S 73 45 3 8 206 -262-x 1 -2 (3) 6 -30 - - 41 -11

abber 1 -2 (3) 4 -10 - - 17 -8

Tocal 15' -416 -48 155 - 4 15 389 -537

Case 2:- Srply 12as4t±iy - .45. flazd Mutici!Xy -. 75

73 -239 -312. 51 29 2 5 28 -64RIce 46 -163 2.9 82 -48 2 8 40 -98

4 -60 -64 18 21 - 2 2 -25smkoics 5' -68 (122) 46 -12 3 3 44 -38

Cczoi 6 -9 -15 10 - - I 8 -9Sarum 388 -1,261 -1,649 269 1.4 9 30 154 -348Cooom 9 -3 (12) 22 -l40 I - 47 -8l2kbe 9 -3 (12) 13 -16 1 - 20 -5

Tocal. 589 -1.826 -2Z123 511 88 18 49 343 -595

Sbaz: ageria - An AnayLs±s of irlo ral. made ai a bsiPv olics. Worl Bark ('AxLte CoerP&ozt), Apssc 15, 193.

ftm:- MM f1gzza lu Parsiwtss mf= to eqOrs The tO (-) lz1ces that ti vaks inabo2te trm is edr, all or Ihs chan urLty.

- 108 - ANNEX III

Page 22 of 26

Tible 23: sA DMKZ M Gr rI Di% C= M, 192

Deed Wexct Tes 9ruAssPt&. GXLs. Zorts FoKelp Taiff Prcoe ccns=r - ftodcr C= er

(Exps) a e 2eacsc coc oc so N . F

Case 1: SaIov aasricic7 - -E. Dead ccim - -.25

A137 . 539 78 -1L 18 52 192 -299RLce 8 -52 - 22 -6 - 2 26 -,5who= -L 16 17 -9 - - 2 -L 52cwureurs -2 6 8 -3 1 - - -9 9

-L 4 5 -7 1 - - -3 8Socsha 616 -1.539 -2,155 319 -87 65 162 928 -1,155oax -2. 1 (-3) -S - - - -23 7lber -1 1 (-2) -1 - - - -5 3

Toma 754 -1,9f5 -2.719 394 -IC2 83 218 t.105 -1.450

Case 2: Slctlv ELastiaciv -. 45. -wm MuacIOcv --. 75

615 -1,206 -1,821 264 -36 79 15 131 -4034 -156 -190 69 -19 1 6 25 -79-3 184 187 -27 1 - 5 -1 48

Gromuens -10 17 27 -10 3 - -9 9Ca -2 11 13 -23 4 - - -3 8So9m 2,770 -4,617 -7,387 1.094 -298 292 '86 701 -L,479CO=T -7 4 (-11) -19 - - - -23 7Pu:btr -3 3 (-) -5 - - - -5 3

Tocal 3'94 -5760 -9188 1.343 -345 372 652 816 -71.885

Soazca: Nimmla - rni Aave-s of Aci-cl"lr21l frde a4A5.abs1d Policr. ps, 2i4 Bak (Lr. CCU=erScp), aApsc 15, 1083.

'feg: MM !Igr ! Par EeS ruf ,a e& oru. O gAs C-) H ±CRMs ±. t!A' valu.e inabloc ze s Is fdr WIJ cr las C±'. unrrc.

Tablo Comiloulta Conaumur Price index Rural and Urban Centers

(Basel Avarago 1976 . 100)

1973 a/ 1974 a/ 1975 1976 1977 1978 1979 195a 198i

All ltemu 66.3 75.2 100.11 123.8 143.0 166.7 186.3 204.8 242.5

Food 60.8 70.4 100.0 122.0 14R.0 171.9 185.7 199.9 250.2

DrJilk1 71.4 72.3 100.0 131.8 140.0 154.0 175.8 18B.0 b/ 103.0

Tnbacca and Kola 91.3 97.4 100.0 142.7 183.1 186.0 202.9 229.2 264.8

Aeccimmodatlon, Fuel & Light 91..8 93.8 100.0 108.6 127.3 131.4 166.0 170.4 173.2

Ctotlbils, 70.6 83.0 100.0 128.1 141.4 176.3 219.1 270.2 313.7

'franaloort 70.3 91.8 100.0 116.1 141.1 158.4 1'l5.S 197.3 201.7

oulier Piarcimnsea 64.9 73.2 100.0 120.9 136.9 147.1 156.0 181.5 194.6 1

Otlier Servic4h 74.3 80.4 100.0 118.0 143.0 156.7 177.7 235.2 282.7 %0

R11.e Of Inflatlon (2) 6.1 13.4 33.0 23.9 15.4 16.6 1I.8 9.9 20.8

a/ Condtimer price lndat. In u.rban centers for lower Income group.I/ Eutinatu. lasad on weigltted averaga ruLto buctueai tood and drink for January throughi June 1980.

Souircoz Felderal Office of Statlitics.

Ia%OH

FN

0%

Table 26: IIIDICES OP AVERAGE VJUKLYPRICES (C.I.F.) IN LONDON OPNIcERIA'S I4AAOR A0RTCULTURAL EXPORT COM0MODITIMS

(1974 - 100)

/aVeights 1975 1976 1977 1970 1979 1980. 19817

All Coamoditles 100.0 67.0 106.7 165.3 WfJ 12,7 226.4 11.1

lenniseed 5.4 91.0 90.6 114.9 145.0 138.5 119.9 130.6

Cocoa 15,3 76.7 131.9 250.8 193.9 183.4' 104.7 108.7

Coffee 10.8 101.4 227.2 409.4 216.5 273.9 169.5 170.7

Copra 5.6 36.6 39.4 62.2 76.6 100.7 55.3 55.4

Cotton Lint 13.2 81.4 118.6 109.3 114.2 110.0 120.6 123.5

Ginger 14.8 78.8 i9.6 152.5 159.0 214.5 59.8 59.8

Groundnuts 5.1 60.1 64.7 95.5 102.6 92.9 88.7 94.0

Groundnut Oil 9.9 80.9 72.3 91.0 105.5 72.2 87.5 89.9

Palls ernels 4.0 45.2 50.8 74.1 82.3 105.1 55.2 65.3

Palm 011 6.0 63.7 57.3 79.1 88.5 92.1 71.9 80.1

Rubber 7.5 90.8 146.4 157.0 166.4 152.2 147.8 134.8

Soyabean. 2.4 74.8 77.4 107.3 104.4 108.3 101.9 104.0

la As of Harch 19R1.

Lb As of Fcbruary 1981.

OQ Source: Central bank of Nigeria.

0

ANNEX IIIPage 26 of 26

Table 27 : CALCULATION OF FERTILIZER SUBSIDY

Unit 1979 1980 1981 1982

CIF Lagos price 11 I/m.t. 185 135 150 160Port and Clearing X/m.t. 30 30 30 30Traasportation to State X/m. . 55 55 60 60Cost at State a/m.t. 270 270 240 250Transportat4on 0Tith±!

State I/m. t. 12 12 15 15Cost at farugate 9/m.t. 282 282 255 265SeI11±g price 3J/m. t. 43 43 Lfl 51Subsidy J/m.t. 239 239 211 214Suabs4iy sate < 85 85 83 83o't2l zUantit7 -rov-.ded OOO.t. 396 393 941 631otal subsidy pro7ided m uil. 95 94 199 135

Source: FP3Z and :-a 1,79 Agricultural Sector Rev'ev, 197o, The Wcrd 3ankc.

17" The CIT-Lago8 price is the averags of the Prices of three types offertilizer; urea, 15-15-115, and SPP.

- 112 - ANNEX IV

Page 1 of 29

THE NIGERIAN AGRICULTURAL SECTOR MODEL

APPLICATIONS OF A SECTOR MODELTO ISSUES OF TRADE AND PRICING POLICY

1. Introduction

This annex summarizes some preliminary results of work on anagricultural sector model for Nigeria: the model's applications have beenoriented toward questions of tariff policy and the possibilities for supplyresponse from domestic production. The methodology and conclusions from themodel analyses are discussed here; a complete description of the model isavailable elsewhere. 1/

For completeness, this note includes some material from an earlierreport 2/ and it also presents recent work. The outline of the paper is asfollows: the next section reviews the general role of the model in analyzingissues involving pricing policy (including tariffs); section three thensummarizes the model's structure; section 4 presents some analyses of thesector's responsiveness to price and wage changes; and section 5 discussesthe specific analyses of trade policy options. A summary of the findings isgiven in section 6.

2. The Role of the Model

In developing an applied model, the first question that arises iswhy is a model needed? What kinds of questions cannot be answeredsatisfactorily by other, simpler means? The next question concerns the mostappropriate type of model. In the case of pricing policy issues in Nigeria,several kinds of related information are needed:

the supply responsiveness of particular crops to changes in theirprice levels

the cross-supply responsiveness of other crops

the net changes in employment and input use caused by output pricechanges

* the net changes in farm income arising from output price changes

1/ R.D. Norton, "Applications of a Sector Model to Issues of Trade andPricing Policy in Nigerian Agriculture", report submitted to the WestAfrica Region of the World Bank, February 1984.

2/ R.D. Norton, "Pricing Policy Analyses for Nigerian Agriculture,"report submitted to the West Africa Region of the World Bank,September 1983.

-113 - ANNEX IVPage 2 of 29

Table 27 : CALCULATION OF FERTILIZER SUBSIDY

Unit 1979 1980 1981 1982

CT-? Lagos iorice t/ N/m.t. 185 15 150 160Port and Clear±n3g /m.t. 30 30 30 30Transvortation to State 9/m.t. 55 55 60 60Cost at State ;/m.t. 270 27T 240 250frs.zsportation wi th'in

S;ate N/=.t. 12 12 15 15Cost at armgate 0/m. t. 252 252 255 265Sell_wig z:rie J/2.t. 4.3 4. 51Subsid7 N/m.t. 239 29 2111Subsidy .ate 85 35 83 83

cza Iaan tity =rovided COO.t. 396 393 941 631Total 3bs _dy P.ov±_ed n3'. 95 Q4 199 135

Source: FPDP and :he t97 riculturml Sector leaview, tg7g, Me World BS-a.

1! I "e CIT-Lagos -rice is the average of the pr-lces of' :hree types offe?'tilizer; area, 15-'5-15. ead SP?.

- 114 - ANNEX IVPage 3 of 29

These kinds of questions cannot be answered on the basis of farm budgetparameters or other partial calculations, because there is sector-widecompetition for resources and for markets, in the face of downward slopingproduct demand curves. In general, a change in the price and output of anyone major crop will lead to output and price changes for other crops.International evidence can provide reasonable orders of magnitude for supplyelasticities in many cases, but in Nigeria the prevalence of mixed croppingpractices limits the applicability of such evidence. Also, internationalstudies are not helpful on cross-elasticities and other concepts such as netchanges in input use, for those effects depend on specific cropping patterns.

Basically four alternative approaches have been used, at differenttimes in different countries, in addressing the question of appropriatelevels of agricultural prices. They are:

1. Setting domestic prices at the international equivalent levels,either via trade or via computation, using shadow exchange rate asappropriate. This procedure corresponds to the use of staticeconomic efficiency criteria as a guide to policy.

2. Computing the gap between domestic food demands and domesticsupplies (leaving out effectively non-competitive products), andfrom estimates of the domestic supply elasticity computing theprice rise required to close the gap (1979-81 policies in Mexicoare a case in point here).

3. Via field studies of production costs, computing national averagecosts of production, and optionally adding a profit margin, to findthe appropriate price level.

4. Positing alternative possible price levels and exploring, via amodel, their consequence for multiple variables, and then choosinga price level ex post in view of thse multiple consequences.

The first approach begs the issue of an agricultural terms zif tradeconsistent with Nigeria's socio-economic goals. To follow a strictinternational pricing policy would exacerbate the domestic food prodr^tionproblem, would decrease rural incomes relative to urban incomes, wouldincrease agricultural imports very substantially, would worsen the levels ofrural malnutrition, and no doubt would contribute to higher rates ofrural-urban migration. The only clear benefit would be a reduction in foodprices to consumers. The Nigerian Government does not prefer this set ofconsequences and it has shown a willingness to allocate resources in a waythat attempts to avoid these outcomes. The high cost of labor attributableto the expansion of the petroleum sector has simply made Nigerian agricultureunviable at international prices.

The food gap method can be useful, but it assumes that only onepolicy goal is relevant; reducing food imports. Also, the required supplyelasticities may not be available without constructing a model to generatethem.


The average cost method has two important weaknesses: pricesshould reflect marginal, not average costs, and the method does not take intoaccount cross-price supply elasticities, and so it cannot help in pricesettings for multiple crops. The first weakness is particularly important,for on a sector-wide basis marginal and average costs usually divergesignificantly.

Average cost concepts also are used in calculations of effectiverates of protection. Such calculations can be helpful in showing how fardomestic prices have diverged from international prices, as measured by ratesof protection to value added. If a policy determination has been made thatit is desirable to move domestic prices closer to international prices, thenthe effective protection computations can give an indication of themagnitudes of pricing changes which are required. Their principal limitationis their dependence on an average cost of production measure, i.e.. the lackof a supply curve. As Figure 1 shows, using a tariff to raise the domesticprice of imports (from p to p ') can result in either reducing imports, fromthe quantity (b-a) to the quantity (d-c), or it can eliminate importsentirely, depending on whether the domestic supply curve is at S1 or S2 .

Another drawback of the effective protection rates is that theydo not reflect changes in the domestic terms of trade. Nigerian agriculturehas seen unfavorable movements in both the internal and the external terms oftrade over the past decade. As a consequence, agricultural prices aresimultaneously high by international standards (at the official exchangerate) and low in terms of being able to attract domestic resources. Aneffective rate of protection calculation based on the official exchange ratewill show the former relationship but not the later.

To address supply response questions in a sector-wide context, weare left, then, with the alternative of constrtcting a model. An adequatemodel has to be sector-wide in scope, in order to take into account productdemand effects and cross-supply effect. Agricultural sector models have beenconstructed under official aegis for an increasing number of developingcountries in recent years, including Mexico, Brazil, Egypt, Central America,Korea, the Philippines, Thailand, Tunisia, and several other countries.Reviews of methodology and case studies may be found in recent papers byNorton and Schiefer and Kutcher and Norton. *

However, it should be recognized that it is not always a simplematter to construct an adequate sector model and carry it through to fruitfulapplication. Recent methodological developments have enabled models to be

* R.D. Norton and G. Schiefer, "Agricultural Sector Programming Models:A Review of Alternative Approaches," European Review of AgriculturalEconomics, vol. 7, no. 3, 1980; and G.P. Kutcher and R.D. Norton,"Operations Research Methods in Agricultural Policy Analysis," invitedreview, European Journal of Operational Research, vol. 10, August1982.


Price

I

qo ti ~q' Qulan:iry

Fig~e 1. E'ffecss of Levyng a Tariff


built with minimal reliance on time series data, but still an adequatecross-section is needed, and that is not always possible to obtain. Also,given that judgements always are required in model building, it is importantto maintain close communication between modeling specialists, agronomists andother field specialists, and persons in policy positions. This, too, can bea difficult requirement to meet satisfactorily.

It is important to emphasize that a model-based analysis will notprovide a "best" policy proposal, nor should it be expected to do so. It canhelp illuminate policy options by providing approximate estimates of themultiple consequences of policy changes, but choice among the options dependsupon preferences as regards policy goals. Usually those preferences are notstated in explicit form, and in fact the process of reviewing the model'ssimulations of the effects of policy change can assist policy makers indefining their preferences. This is the intended spirit in which theNigerian model has been applied.

A model-building exercise has been undertaken for Nigeria, but itshould be made clear that it still is in rather preliminary form. On thedata side, while there are a number of surveys and local studies ofproduction practices, not all of them have been processed into usable form(as of the date of this study), and their regional coverage is uneven. Otherdata deficiencies exist as well, particularly in respect to establishingcomplete sector-wide supply-demand balances for products and resources. Onthe institutional side, there have been some preliminary discussions withNigerian officials and with specialists engaged in field studies, but thepresent version of the model should be viewed as quite tentative, and subjectto considerable modification on the basis of further discussion in Nigeria.In spite of these deficiences, the model gives some indicative results whichare specific to Nigeria.

The model is applied via a series of "policy experiments"' forNigeria each of which consists of a model solution with one or moreparameters varied to represent a change in policy. The model simulates thesector responses to the posited changes, and these responses are tabulated interms of the major variables of interest, such a production levels by croptotal employment, and farm income.

3. The Structure of the Nigerian Model

In its general structure, the Nigerian model (called MONA) followsthe pattern of the models for Mexico, Egypt, etc. However, in its treatmentof production structures, it differs significantly from previous models, forin this area it is based largely on mixed crop enterprises. In other words,a typical production variable ("vector") in the model contributes outputs tomore than on supply-demand balance. Common examples are maize-yams-cassavaand sorghum-millet-cowpeas enterprises. Over 300 such enterprises areincluded in the present version of the model.

-118- ANNEX IVPage 7 of 29

The model's specification contains the following basic elements:

a) A description of farmers' resource endowments and the availableproduction technologies.

b) A description of farmer decision rules for making productionchoices.

c) A description of the market structure of the sector.

d) A description of the policy environment of the sector, e.g.,subsidized inputs.

The first element is entered into the model via resource constraintequations for each region and sets of input-output production coefficientsfor alternative cropping systems. For the present version of the model, thesector has been divided into ten producing regions with land constraints byregion. Following the earlier discussion, labor constrains the productiondecisions via its costs, not through limits on its physical availability.

Tables 1-4 show samples of the model's alternative productiontechnologies for four of the ten regions. For five central and northernstates (Niger, Plateau, Bauchi, Kano, and Sokoto), sufficient data have beenavailable from the A.P.M.E.P.U. agronomic surveys to specify rather largenumbers of production choices at the representative farm level, asexemplified in Table 1. (Table 5 contains summaries of the surveyinformation on fertilizer use by crop enterprise which was used in formingthe vectors of Table 1.) For the southern states, comparable surveys are notyet available, and so specifications of possible crop mixtures and associatedyields and input requirements were made at the village level rather than thefarm level. Examples of these specifications are shown in Tables 2-4. whichalso provide references to the village studies from which the data weredrawn.

The regional differences in typical cropping patterns are apparenteven in these sample tables. Yam-based and cassava-based mixtures are muchmore prevalent in the south. In all, the model contains seventeen crops,including all the main staples: yams, cassava, sorghum, millet, maize, riceand wheat. Tree crops have been omitted from this version of the model,owing to lack of adequate information on how they are grown in mixtures withother crops. To account for omission of tree crops and minor annual crops,the cultivable land endowments have been reduced correspondingly.

Element b) of the specification, the farmer decision rules, isimplemented by means of the objective function (maximand) and specialconstraints for risk aversion. The assumptions about farmer behavior arethat the main motive is maximization of returns to fixed resources, subjectto risk aversion (and of course subject to the availability of productiontechnologies and the resource endowments). For the present version, riskaversion is included by the very simple means of requiring that no singlecrop enterprise may account for more than one-fourth of the total cultivableland for a given region and farm size group. The figure one-fourth derives

- 119- ANNEX IV

Page 8 of 29

from review of the A.P.M.E.P.U. data, tabulated in the form of frequencies ofcrop mixtures.

The model's market structure (element c) in the specification is anatomistic, price-taker market in which prices adjust to clear the marketwithin the cropping year. Consumer demand functions are downward-slopingwith respect to price, and no one producer or producer group has enoughinfluence over the market to influence the price. This kind of marketstructure may be represented in an optimization model under an appropriatemathematical structure of the objective function, on the basis of demandparameters and production cost coefficients. * The same objective functioncorresponds to the assumption of farmer profit maximization at the microlevel, subject to additional behavioural constraints such as risk aversion.

Importing activities are included in the model for wheat, rice,maize, groundnuts, cotton, and, for some experiments, sorghum. Theseactivities supply imports to the commodity balances at the c.i.f. price,converted by the exchange rate and marked up by tariff rates. In some of theexperiments, the import quantities are limited by quotas, to reflect reality.Both the tariff rates and the quotas are varied extensively in the tradepolicy experiments which are discussed subsequently.

As regards element d) in the specification, the policy environmentis represented in the model by input price parameters and by changes inoutput prices. These changes are described below in the context of thepolicy experiments.

4. Structural Experiments with the Model

An important characteristic of the MONA model is that it hasexplicit product demand functions but implicit product supply functions andfactor demand functions. These latter functions are implicitly defined bythe production technologies, resource endowments, and producer decisionrules. The main task of the policy experiments is to trace out thesefunctions in numbers, i.e., to make them explicit.

In other words, the model is beiug used to develop supply functionson the basis of cross-sectional information. Traditional econometricprocedures are of limited usefulness for this task (although they wereemployed extensively in section 4) for three reasons: time series data onproduction are not sufficiently accurate, the time series are not availableby locality (region), and the time series do not contain enough informationto estimate the cross-elasticities. The cross-elasticities are important,especially in an environment of mixed cropping. In addition, the time series

* J.H. Duloy and R.D. Norton, "The CHAC Demand Structures," ch. 3 inR.D. Norton and L. Solis M., eds., The Book of CHAC: ProgrammingStudies for Mexican Agriculture, The Johns Hopkins University Press,1983.

nNA

l'ble 1. SMIPLIi PRlOIUWTrION TFOINOLOGIF4S; NICOR STAIh'

Tocilmnlalgy nn. 1 2 3 4 S 7 a

Model vector no. 19 (3 20 21 414 17 22 23

sorghlt 1.439 1.033 1.535miloet 1.056 0.046groundnilts 0.b56 1.245 1.115ricu 2.244*oin5ms 0.510 0.893 0.325maiaIzec'assavapoppa,.SW. potatoescaulu 1ulh o

lulbur 134 68 65 133 121 11)5 14th 122fortilizer 0.0)94 0.039 0.0n5 0.034 0.2115 0.1141 0.101) 0.107otlmer cioumicals 0.0)115 0.01)2 I1.11)3 0.00)2 0.1)014 0.1102 0.4)4)3 II.005Sliallt3 1.U 1.43 I.0 3.0 3.0 I.). 1.43 3.4

Ntuts: I) Yiulds slmow,l horto &ar avsatiges of thu yields for time thiree arm siza classes wlileh impjioir Intile m0odl.

2) Lalour iiirmils are in *mn-duys, furtilizor niid otimor ClCUicals in tons, anid land In lhoclaeros. Inthuo neImsacmic of lioiter infiolrlion. otmior costs nrc Imifniraly sot ut N 343l) lir ji-'tolrv

~oaru&or: Yi lils und l imiaiss of flto ili zur. oithma r dloFmicals anitd IUiid -- from A. P..H.IP'.PI. Angm.ir;|uc SmmL'vys. I.ulnar igliints -- ilmillhor's iiwim duel vatiOlm hosesod Ul World DIanIk lirojoel apprm s;aiial ci'

o

IkINA

Table 1. SAMPI'I. I'ROIICTION TECHIINOLOGIUS: NICER STATO (Cont.)

Teclnology no. 9 10 II 12 13 14 15 16

Madol v.cto.r no. (32 14 24 25 05 26 16 27

Ylol-ds (tons)

sorgliiw 1.417 3.038 1.3119 1.044millut 0.710 0. 11X5 0.824grounudntts 0. 7nn 3ricesclons 0.424Mmlze ll0.907cassava 1.475puppe m (3.1153sw. 3iota0o0 11.918culubusli .338

lubIu 1111 2o3 132 1211 119 IHII 9' 107fcrt licr n.n225 0.112 0. 2112 .123 (1.031 0.0119 0.023 0.300otler dliemi:als 5 ..1311 I. (III 0.010 (.0(3If 41.0102 .414104 0.001 0.003lanzd 3.1 3.1 1.11 1.0 3.0 3.0 1.0 1.0

\0

- 122 - ANNEX IV

Page 11 of 29

Table 2. PRODUCTION TELO*.LQGIE5: Kr'ARA

Yields (tons)

millet O.133 1.47

yams 2.38 2.49 1.74 1.74 2.12

sorgh= 0.375 0.375 O.3iO 0.273

cowpeas a.0os a.102ma:e 0.049 0.174 0.017 0.006

cassava 0.108 0.060 0.814melons 0.017

Inauts

Labor 119 124 106 6, 90fertili:er 0.002 0.004 0.009 0.005 0.001other costs 94 97 83 86 97

land 1.0 1.0 1.0 1.0 1.0

Source Co=iled oy Brian Faucet: from:Lothar 0ieh, S_allholder Far=ing Systems with Yam in the

Southern Guinea Savannah_o Sigena, 1982 (based on1977-78 data).

Note: Labor ixnputs are exressed L;i =xan-days, fe=-r1 ' :er in netri-tons, other costs in naira. and Land in hectares.

- 123 -ANNEX IV

:Ai!;.t Page 12 of 29

Table 3. PRDUCTION TECINOLOGIES: ONDO

'1 2'2 .3 34 'S 6

YieLds (tonSI

C3ssaVa 0.97 1.0n 0.91 3.50 1.31 3.Z5

yams 0.91 2.07 0.88 0.41 1.42

Mai:* 0.17 0.10 0.OS 0.12 0.15 0-'3

melons 0.09 0. G

cocoyams 1.28 0.90

rnPuts

labor 67 134 65 12 7'2 1-0fertili:er 0.004 0.010 0.004 0.005 0.009 0.008

other costs 73 139 66 77 3a 71

land OS. 1.0 0.J4 1.0 0.47 1.0

Source: Compiled by 3ri1n Faucett from:Agricultura1 ProjeCt Planning and Marketing DLvision, M4inistrwof Agricultural and Natural Resources. Western State of Nigeria.Farnm Ertervrises and Resource U-se in the Western State of Nigeria,Ibadan, December 19-1.

Note: Labor inputs are expressed in -an-days. fertilizer in metrictons, other costs in naira. and land in hectares.

- 124 -ANNEXPage 13 of 29

Table 4. PRODUCF0O TEOM 0LOGIEs: AXAMRA

'1 #2 3 *04 63 '6

Yields (tonsl

yams 1.18 1.69 2.48 O.S8 1.60

rice 0.16 0.17 0.36 0.65

cassava 2.S6 1.27 1.08 0.69 0.96 Z. 80

sw. potatoes 0 .006 0.02 0.01

groundnuts 0.0'0 0.01

cocoyams 0.008 0.12 0.02 0.03 0.16 0.40

mi:e

InDuts

labor 278 339 4 0 ,a 30 0 b 100 131other c 0 t5sd 119.5 14.4 200c 213 40 S8

land 1.0 1.0 1.0 1.0 0.90 0.90

Sources: Co:piled by Brian Faucet: froma) Systems 1-4: RaphaeL Igwebuzke, 3arriers to Agricultural

Veveloament: A Studv of the EconoMi:s of .Agricu1:r,ein Abakaliki Area. Ni.Zerma, Ph.D. Ci3sertation, Stan:o.rdUniversity, 1975.

b) Systems 5-6: report of Tahal Consultan:s for the A'nambra StateADP appraisal, 1982.

aRaw fig.e: 726.

bRaw fig-ure: 373.

CL-w figure: 200.

dincluding ferili:er.

Note: Labor :iuts are exoressed in. man-days, other costs in naira,and land in hectaes.


data may not always encompass sufficient price variation to include thecontemplated policy changes.

In a case where sufficient data were available to permitcomparisons of supply elasticities computed via econometric and linearprogramming techniques, Shumway and Chang found that the two proceduresyielded quite comparable estimates. *

Figure 2 illustrates the procedures for tracing out product supplyfunctions. Before the experiments, the supply curves S0 and S are unknown.Point e represents the initial supply-demand equilibrium in tAe basesolution. A subsidy per unit of production of this crop, of the magnitudew - p* - p1, is then added to the model and a new dollution is obtained. ThesubsiAy may be implicit via a tariff. Not all the subsidy goes to farmers(only the part (p* - p ) does), but production increases to the new level ql.The government has a chfoice of selling the higher supply to consumers at thenew market-clearing price p1. or explicitly subsidizing (or taxing)consumLrs. However, letting the market clear still brings increased benefitsto consumers (area p ee 2 pe in Figure 2), and so the subsidy w containselements of both consumer, and producer subsidy. The decision on theconsumer side does not affect the outcome of the experiment in terms offinding the shape of the supply function. We assume for convenience that thehigher quantity is sold at the market-clearing price, and so the model givesus the following information: new quantity q1 and new prices p1 .

By adding the subsidy v to p1l we find the price p* whichcorresponds to the farmers' gross return per unit of production, whenproduction is at the level q1. This is the marginal cost of production, andit corresponds to point e1 in figure 2. By connecting e and e1, we havefound a portion of the supply function, and the arc elas?icity of supply maybe calculated over that segment. Gross farm income in the model is thenplq1 + wq1 p p*q1 For calculating farmer benefits per unit of subsidy, thesubsidy amount (pt - p0)ql should be used, not wq1 for the latter includes asubsidy element more properly associated with the increased consumerbenefits. These kinds of experiments are shown in Table 7, but first wereview the cases shown in Table 6.

Table 6 shows the base solution in comparison to the veryapproximate estimates of production developed in a comparison study. It alsoshows the model's simulated responsiveness of sector behavior under higherwage rates. The results in that table indicate that the types of crops mostadversely affected by increases in labor costs are, first fruits andvegetables and yams, and second, grains. The model's conclusions are basedon the fact that all these crops are almost always grown in mixed

* C. R. Shumway and A. A. Chang, "Linear Programming versus PositivelyEstimated Supply Functions: An Empirical and MethodologicalCritique," American Journal of Agricultural Economics, vol. 51. 1977,pp. 344-357.

ANNEX IV- 126 - Page 17 of 29

Price,

/51

p.I

Figa '. Psacdue for de ircii:g Policy Ex:p.rierss

A1NEX IV

- 127 - Page 18 of 29

Table 6. BASE SOLUTION AND WAGE EXPERIMES.NIGERIA AGRICULTURAL NODEL

Output Elasticities withOutput Levels Respect to Wae Rates

ReservationEstimated Base Market Wage Share offor 1982 Solution Wage Market Wage

Sorghhum 3,8S0 3,603 -. 16 -. 2Z

millet 3,275 4,101 -. 08 -. 10

Mai:e 1,120 1,098 +.14 0

Yas 17,258 1S,834 -. 57 -. 03

Cassava 10,926 10,,756 *.1Z *. 05

Cocoyam 1,634 1,389 *.21 *.30

Rice 700 5S25 -.15 -. 12

Cotton 160 -. 21 -. 14

Cowpeas 1,094 0 -. OS

Melon 9S -.09 -. 17

Ppeer 53 -4.46 -1.98

Sweet potatoes 91 -. 25 -. 51

Groundzuts 630 0 0

0kra 7 0 0

!btes: 1) Output levels are in thousand metric tons.2) 'The Market wage rate for the base solution is S naira per

day, and the reservation wage is 80% of the market wage.3) The output elasticities with respect to wage rate changes

were calculated over the following range of values:market wage, 4 to 6 nairareservation wage, 40% to 80% of the market wage

4) Imports and aggregate variables in the solutions are dis-cussed subsequently.

5) This baso solution refers to the January 20, 1984, versionof the model.


enterprises. The combination of crop enterprise effects and substitutioneffects leads to the result that production of some crops increases withincreases in the wage rate. In particular, cassava and cocoyam tend toincrease at the expense of the more labor-intensive yams, and maize tends tosubstitute for sorghum and millet. In reality, cassava has suffered seriousinfestation (mosaic) problems which have reduced its production in recentyears, but these results suggest that as mosaic-free varieties become morewidely used, the farmers may tend to switch from yams to cassava over time aslabor costs increase. The results also suggest that prospects for cocoyamshould not be overlooked.

The last column in Table 6 shows that the responsiveness to changesin family labor costs is different than the responsiveness to total wagecosts. Hence, increasing opportunities for off-farm work have a differentcost-side effect than market wage increases do. These differences areexplained by different land:labor ratios over regions, and the fact thatprevailing cropping patterns vary significantly over regions.

The aggregate effects which are associated with the 20% market wageincrease are as follows:

Employment -5.3%

Farm profits -11.7%

Agricultural income +5.5%

Production index -3.7%

Index of consumer surplus -7.5%

The employment response to the wage increase suggests that the derived demandfor labor in the sector has an elasticity of -0.27. The net effect on farmincome of the wage change is of course negative, but it is positive for totalagricultural income, including the income received by hired farm labor.

The aggregate production index declines by 3.7% witb the 20% realwage increase. This result has rather important implications for thecontroversies over the time trends of agricultural production in Nigeria. Ifreal wages have increased by 5% per year, as seems to be the case, then thisfactor alone accounts for a drop in the production growth rate of onepercentage point per year. Also, as has been argued in earlier reports, thelabor cost per hectare to farmers is likely to have increased faster than thegrowth rate of real wages, so the vage factor may have been responsible foreven a greater reduction in output growth.

Table 7 provides some basic results from the supply functionexperiments which were illustrated by Figure 2. The own-price supplyelasticities turn out to be 0.35 for maize, 0.84 for sorghum. and 0.05 foryams. In light of studies for other countries, these figures appearreasonable. Not surprisingly, the grains seem more responsive to pricingpolicy than root crops. These kinds of responses are behind the trade policy

- 129 -ANNEX IVPage 20 of 29

Table 7. RESPONSE ELASTtCITTES FROMI TIE PRICING EXPERIMEYMS

Maize Sorghum YamPrice Price Price

Increase Increase Increase

1. Price Elasticities ofProduction

Sorghum 0 *.84 -. 01

Millet -.OS a 0

Maize *.35 +.33 0

Yam *.02 0 *.05

Cassava 0 0 .11

Cotton -. i7 -1.54 0

Cowpeas *.l0 *.65 0

Melon 0 *1.71 0

Sweet potatoes 0 -1.52 0

1. Elasticities withRespect to Production

Employment +.10 * 4 v1.'1

Farm profits .51 -.04 +30.9

Farm income *.22 *.19 -9.2

Notes: a) Price elasticities are calculated as % quantity changes dividedby the % price change in maize. sorghum. and yams, in the threecolumns, respectively.

b) Production elasticities are calculated with respect to % changesin production of mai:e. sorghum, and yams, in the three columns,respectively.

c) In the case of yams, the experiment led to a 20.5% increase in thegross value of yam production and a 9. 2: increase in farm income(over all crops).


experiments which are discussed in the following section. In Table 8, theaggregate responses to crop price changes are tabulated in the form ofbenefits per unit of subsidy, assuming for illustrative purposes that thehigher prices to producers are achieved via direct subsidies. Only theportion of allocable to farmers was used in compiling that table. The tableshows that, because a subsidy to one crop causes a decrease in the productionof other crops, the government is effectively buying additional grain at themargin at a price of N500(ton or more. Of course, buying it in the form ofimports would be cheaper, but that would lead to reductions in agriculturalincome and employment, whereas the domestic pricing policies create moreincome and employment. Interestingly, wage control policy is more efficientthan grains pricing policy in promoting staples production and creating moreagricultural employment. Not surprisingly, it is less efficient than outputsubsidies in generating more farm income, because farm income includes allagricultural wage income. Attempts to subsidize root crop production wouldappear to be less efficient than attempts to subsidize grains.

5. Trade Policy Analyses

Trade policy in Nigerian agriculture has involved both tariffs andquotas on the import side and export subsidies for some tree crops. *However, the historical picture is difficult to interpret because a) in thepast many food imports have entered the country duty-free on governmentaccount, and b) quotas have been applied irregularly over time. Indeed, oneof the early recommendations to arise out of this sequence of Bank work onNigerian agriculture was to make the trade policy more uniform over time, sothat consistent incentives wvuld be given to domestic producers.

In order to analyze trade policy options, two versions of the modelwere established: one for the 1982 "base case" and one for alternative casesin 1984. For the 1982 version, quotas were included at the actual importlevels, in order to reflect actual trade influences on the economy. Byremoving those quotas and then varying tariff rates, it was possible to findthe tariff equivalent of the tariff-cum-quota package of policies whichactually was employed in 1982, in the case of the main import competing crops-- rice and maize. For rice, that tariff equivalent was 41Z and for maize,it was 194%. In other words, for both crops, but especially for maize,imports would have been much larger had the informal quotas not been ineffect.

To establish the 1984 version, the c.i.f. import prices wereupdated to reflect (real) changes in world prices, and the quotas wereremoved. Also, in order to better explore the full range of possibilities,sorghum importing activities were included as possibilities in the 1984version, subject to an arbitrary upper bound (quota) of 500,000 tons.Finally, the Janded import prices were modified to reflect the probable real

* Data and time limitations have precluded incorporation of tree cropsin this version of the model.

-131- AIlEX IVPage 22 of 29

Table 8. EcFICLyCT OF POLICIS PER LMIT OF L'?LICIT FARM SUBSIDY:

COSTS PgER uNIT GAIN IN SOCIAL TARGETS

aizse Sorghum Yam roderat ioaPrice Price Price of WageIncrease Increase necrease Iacrzases

Staples production 674 517 b 478

Farm income 0.92 0.95 0.98 1.67

E&ployment 4,069 1.459 15.738 2,498

astaples for this purpots. are sozghu, millet, maize, yas, and cassava. hheatis not included because its domestic production is negligible.

bThe yam price Increase led to a strong d-cline in cassava producti20. oving tocrop subsritureo sffacts, and therefore a decLine In total staplas production.

Etkts: staples production: naira of subsidy per addt±ounal con.

far income: naira of subsidy per additional naira.

employment: naira of subsidy per add:tional ==-year.


devaluation over the 1982-84 period. If the naira is devalued to 1:1 withthe dollar, and if inflation is about 15% in 1984, which appears likely, thenthat real devaluation will be about 8Z (over two years). The domestic demandcurves for food were not changed from 1982 to 1984, because real income willnot have changed significantly. Also, the real wage rates in the model wereleft unchanged. The 1984 version is expressed in 1982 constant prices.

On the basis of this version of the model for 1984, several tariffoptions were explored and then narrowed down to the three principal oneswhich are shown in Tables 9-11. Table 9 shows the product-level consequencesof the tariff options, and Table 10 the aggregate effects, and Table 11presents a sensitivity analysis of the domestic price data that were used asinputs to the model.

As Table 9 indicates, movement tGward free trade would increasegrain imports over their 1982 levels, even with higher real world prices andthe devaluation. (The world price assumptions used in this analysis areshown in the notes to Table 10.) Imports of maize and rice would increase,but wheat imports would decline slightly because of the devaluation. Sorghumand groundnut imports would be substantial if permitted. Tariff option Ti isdiscussed in Annex V of this report, so it has been examined via the model.According to the results in Table 9, options Ti and T2 would reduce maizeimports substantially and would eliminate imports of rice and groundnuts.Wheat imports would drop 15-20% from the free trade case, and sorghum importswould continue to be attractive in economic terms. These results suggestthat domestic production of rice and groundnuts is more nearly competitivewith foreign supply sources than is production of maize of sorghum. Sorghum,in fact, appears to be the least competitive of the traded or potentiallytraded crops, a reflection of Nlgeria's low sorghum yields. For rice, itsrelatively favorable import-competing prospects depend on vhether productioncould be doubled without significantly raising unit cost of production. Themodel shows the bulk of rice production coming from Niger state and thesoutheast, which appears to correspond to reality. It also shows the bulk ofany expansion coming from Niger, plus a little additional production from thenorthern states. Hence a more definitive judgement on the import-competingpotential of Nigerian rice could be made by reviewing its prospects in Bidaand other parts of Niger state.

These results for tariff options 1 and 2 led to the construction ofa third option with a dual tariff structure: 70% for maize, wheat, andsorghum (if applicable), and 30% for rice and groundnuts. Also, for the sakeof greater realism, option 3 was designed on the assumption that no sorghumimports vould be permitted. This option leads to lover wheat imports thaneither of the other two options, lower maize imports, and small amounts ofrice imports.

When the three options are reviewed in terms of their aggregateeffects (Table 10), the differences are greater in some respects. Forexample, if sorghum imports are excluded, option 3 would generateconsiderably more tariff revenues than options 1 and 2: N101 million vs. N76million and 165 million, respectively. Also, option 3 would have a loweroverall foreign exchange outlay on imports. Correspondingly, option 3

- 133 ANNEX IVPage 24 of 29

Table 9. TRADE AND PROPDCrION EFFECTS OFALTEIATME TARIFF STRUCTURES

(thousand M)

1982 1984 Cases (with Devaluation)

Base Free Tariff Options

Case Trade n T2 T3

Imuorts

Maize 345 555 205 154 121

Rice 5;' 671 - - 79

Wheat 887 843 665 710 577

Groundauts - SG - -

Sorghum - S00 S00* S00* -

Production

ffaize 1,098 975 1,194 1.201 1,234

Rice 52z 460 1,OSS 1,055 976

Sorghum 3,603 3,18S 3,185 3,185 3,S5S

All staples 36,781 36,643 37,514 37,521 37,835

Cotton 160 160 160 153 147

Groundauts 630 580 630 630 660

Vegetables 1,850 1,764 1,842 1,842 1,900

Crop groups

1. Staples: maize, sogtzhum, millet, rice, yams, cassava, cocoyams%

2. Vegetables: cowpea3, pepper, okra, melon, calabash, sweet potatoes,

tomatoes.

Definition of tariff options (%)

Tl T2 T3

Maize 50 66.75 70Rice 47 63.25 30Wheat 45 34.50 70Groumdauts 46 23.00 30Sorghum' 52 66.75

*Solutian at arbitrary upper boud.

*Qjbta imposed to prohibit imports.

134 - AMNnEX IVPage 25 of 29

Table 10. AGGREGATE EFFECrS OF ALTERNATIVE TARIFF STRUCTURES

1984 Cases (with Devaluation)1982

Tariff OptionsUse Free

Case Trade Ti T2 T3

Import cost 372 536 (456) 246 (166) 247 (167) 1S6 (156)

Tariff revenues n.c. 0 118 (76) 119 (6S) 101 (101)

Change in:

a) Farz income .147.S -62.3 -36.3 -64-9

b) Consumer andproducer welfare -67.3 -138.8 -142.9 -21S.S2

c) Agriculturalemployment -1,816.4 2,74.5 *275.5 *1,l89.S

Staples price index 1.000 0.991 1.009 1.009 1.031

Notes:a) The import cost is expressed in 1982 naira, c.i.f. (pre-tariff, but including

devaluation effects).

b) Units: million 1982 naira and thousand man-months.

c) Figures in ;arentheses do not include sorghu imports.

d) The c._.f. import prices, in 1982 dollars, are as follows:

1982 1984

Mai:e 131 157

sorghum 1a8 161

rice 280 272

gomdnuts 287 338

wheat 201 201

e) The proposed devaluation to a 1:1 dollar-naira rate, if the Nigerian inflationrate is 15% in 1984, will amotmt :o a 8% real devaluation (with respect to1982). This assumption has been used in the analysis presented here.

- 135 - ANNEX IV

Page 26 of 29

creates more agricultural employment, but the price for these gains is agreater sacrifice of consumer and producer welfare, particularly consumerwelfare.

Farmer income behaves in an irregular fashion over the differentcases of Table 10. In moving from the base case to the free trade case,staples prices are reduced slightly overall (and more for grains) by importavailability, even with world price increases and the devaluation. Henceproduction of staples declines. Because of the crop consortium practices,this implies a corresponding decline in groundnut, legume, and vegetableproduction, which drives up prices of those products, resulting in higherfarm incomes, given generally inelastic demands. As tariffs are applied,production of staples expands, and therefore so does production of theassociated crops, and farm income moves in the opposite direction.Throughout, it is clear that both farmers and consumers are better off underthe free trade scenario, but agricultural hired laborers would be worse off,as measured by the rates of agricultural employment.

As might be expected, therefore, the tariff options presenttrade-offs from a policy viewpoint. It seems to be clear that if reducingthe cost of imports is a primary policy goal for the time being, then atariff structure closer to T3 is preferable. In particular, there does notseem to be a justification for the lower wheat tariff proposed under T2.Consumers of course would pay the price of a higher wheat tariff, but theywould be higher-income consumers for the most part.

Looking to the longer run, given that maize and rice probably arethe crops that respond most to inorganic fertilizers, their relative degreeof comparative advantage should be enhanced over time. From a supply sideperspective, maize may be expected to (very slowly) supplant sorghum.Because of changes in productivity and international market conditions, anynew tariff structure should be reviewed every 4-5 years. On the other hand,tariff rates should not be changed too frequently, for that would give riseagain to the previous situation of confused price signals to producers.

In Table 11, these results are subjected to a sensitivity test withrespect to the data used. Ironically, one of the main sources of uncertaintyconcerns prices at the farm-gate level. Generally, the Bank's projectstudies report much higher farm-gate prices than the Nigerian Central Bankdoes. (The Federal Department of Agriculture reports high and low prices forthe year in each locality, and the highs and lows differ so greatly that itis not possible to use those prices directly without further information.)The versions of the model used to construct Tables 9 and 10 are based onprice data drawn up with references to both the CBN data and the projectreports. The test solutions reported in Table 11 are based only on CBNprices. As may be seen, some differences result, but qualitatively the sameimplications about tariffs hold. If actual farm-gate prices were as low asthe CBN reports indicate, then a lower tariff recommendation would result.For example, instead of the 70x-30% tariff structure in T3, the equivalentwould be about a 60%-20Z structure if we accept the CBN prices. Forcontinued analyses of this kind it is evident that improved price surveysneed to be developed at the farm-gate level.

- 136 -ANNEXY IVPage 27 of 29

Table 11. SENSITIVITY TEST: EFFECTS OF ALTERNATIVETARIFF STRUCIURES UNDER DIFFERENT ESTIMATES

OF BASE-YEAR DONESTIC PRICES

1984 Cases (with Devaluation)

Free Tariff OptionsTrade n TZ T3

ImPorcs

Maize 531 191 75 39

Rice 671 - _ 3

Wheat 843 665 710 577

Gro3 mdnuts - -

Sorghum S00' 500* Soo* -

Production

Maize 999 1,164 1,193 1,229

Rice 460 980 980 976

Sorghum 2,853 2,938 2,938 3,273

All Staples a6,a39 37,162 37,191 37,558

*Motes:a) The alternative farm-gate price estimates for 1982 are (in X/ton):

original CBN

Mlaize 363 315Rice 372 332Wheat 351 n.a.Growidnuts 364 363SorZhum 309 245Millet 309 357Cotton 400 n.a.ya= 408 n.a.Cassava 164 n.a.Cocoyam 314 n. a.Cowpeas 681 567

b) See notes to Table 9.

ANKEX IV- 137 - Page 28 of 29

6. Concluding Remarks

A comprehensive sunmmary is not attempted in this section,especially as the model work is an ongoing exercise, but a few concludingcomments are offered.

In general, it does appear possible to replace the existingtariff-sum-quota system with a system of tariffs alone, but for most grainsthe tariffs would have to be rather high (on the order of 70Z) if significantsavings in import costs are to be effected.

Consistency over time in the tariff policy would be important toachieve, but occasional revisions of the tariffs may be considered,especially as yields increase under the various agricultural developmentprograms.

There does not appear to be any objective basis for keeping a lowtariff on wheat. Rice, on the other hand, may merit a lower tariff,particularly if field experts feel that rice production in Niger and theSoutheast can be expanded at present productivity levels.

The model does not include tree crops, but to avoid distortingresource allocations in the sector export subsidies should be offered tocurrent and potential exports. If a roughly uniform tariff rate of around50% (in 1984 prices) is adopted, the export subsidies might appropriately beset at a level corresponding to the 50% tariff, on the grounds that exportcrops would be at least as co petitive as rice, groundnuts, and cotton. Anexport subsidy of 33% (1 -- 1.50 ) would correspond to the 50% tariff.

Wage increases in the 1970s definately influenced the level andcomposition of sector output. Amont the root crops, the wage increases havefavored cocoyams and cassava over yams, provided that the disease problems ofcassava can be overcome. Now that wage increases have tapered off, at leasttemporarily near-term growth prospects for the sector should be better.

The supply responsiveness of the sector appear to be in line withthat estimated for other countries, at the individual crop level, so priceincentives should have noticeable effects on production. However, because ofthe existence of some crop substitution effects, the overall productionresponse will be proportionately less than it is for individual crops.

Consumer subsidies are not reviewed in this report, but asdiscussed in other reports, it would be important to investigate theirpossibilities, to offset some of the tariffs' deleterious effects on thewelfare of lower income households. The results in Table 10 suggest that ifquotas were fully replaced by tariffs, a significant portion of the loss inconsumer welfare could be compensated by tariff revenues, provided thatappropriate institutional channels could be devised.

Finally, it should be remembered that, as noted throughout thereport, the model needs improvement, and consideration needs to be given tonew systems of gathering information on farmgate prices.


The supply responsiveness of the sector appear to be in line withthat estimated for other countries, at the individual crop level, so priceincentives should have noticeable effects on production. However, because ofthe existence of some crop substitution effects, the overall productionresponse will be proportionately less than it is for individual crops.

Consumer subsidies are not reviewed in this report, but asdiscussed in other reports, it would be important to investigate theirpossibilities, to offset some of the tariffs' deleterious effects on thewelfare of lower income households. The results in Table 10 suggest that ifquotas were fully replaced by tariffs, a significant portion of the loss inconsumer welfare could be compensated by tariff revenues, provided thatappropriate institutional channels could be devised.

Finally, it should be remembered that, as noted throughout thereport, the model needs improvement, and consideration needs to be given tonew systems of gathering information on farmgate prices.

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ANNEX VPage 1 of 17

TRADE AND EXCHANGE RATES:INCENTIVES, DISINCENTIVES AND PROPOSALS FOR REFORM

1. Over the years, the effects of the Nigerian -oil syndrome" havecaused biases in the structure of the agricultural sector in favor of non-traded crops relative to traded crops and also among traded crops, atconsiderable cost in terms of economic efficiency. Indeed, trade and exchangerate policies appear to have had a greater impact on producer incentives thanhave the input subsidies and support prices discussed in Chapters 2 and 3.The analysis in this chapter attempts to identify the effects of thesepolicies and to suggest reforms designed to correct resulting pricedistortions and economic inefficiencies.

Present Trade and Exchange Rate Policies

2. It is generally recognized that the naira has been significantlyovervalued. Over 1978-82, the naira appreciated by 34-42 percent in realterms (depending on the basket of currencies chosen) when adjusted to reflectpurchasing-power parities between Nigeria and its major trading partners. In1983, it appreciated by a further 13.8 percenc. In recent years, the exchangerate has not been allowed to adjust to reflect the changed export situation.Thus, the Nigerian economy suffered a loss of competitiveness both because ofa nominal appreciation of the naira and because of differential rates ofinflation between Nigeria and its trading partners.

3. There has been some reversal of these disincentives to domesticproducers as a result of the imposition of quantitative restrictions (importor export bans or licensing requirements) and, to a lesser extent, bytariffs. Until 1982, neither tariffs and subsidies nor restrictions onimports, however, were adequate to compensate for the overvaluation of thenaira and for the changed terms of trade of the agricultural sector so thatimports of agricultural goods continued to rise and exports to fall. Erratlcapplication of trade policy created further distortions.

4. In 1983, tariffs on agricultural commodities ranged from 2 percent(fo-r wheat) to about 60 percent (for rubber), as shown in Table 4.1.Quantitative controls influenced prices more than tariffs, however, becauselarge quantities of food imports entered duty-free on Government accolunt.These imports effectively determined Nigerian domestic prices fer rice,vegetable oils, and poultry. They also set the domestic price of wheat wh'ch,owing to substitution effects in consumer demand, affected the prices ofmaize, sorghum, and miller.

- 140 -

ANNEX VPage 2 of 17

Table 1: TRADE POLICIES FOR SELECTED AGRICULTURAL COMMODITIES, 1983

Quantitative AdministeredCommodities Tariff Rate Restrictions Price, 1983

N/t

Maize 20% Import License 290 1/

Rice Import Ban-Packages 400 (Paddy)N.20/kg. less than 50kg.or 40% 2/ Import License-Other 3/ 596 (Milled)

Export Ban

Wheat (or Meslin) 2% Import License n.a.

Sorghum 40% Import License 220

Other Grains (NEC) 20-40% Import License n.a.

Groundnuts 40% 4/ Import Ban/Export License 450Oil: Import License

Oil Palm (oil: 2%) Kernel: Import Ban 510 (Kernel)Oil: Export Ban 495 (oil)Import License

Cotton 10-33 1/3% Import License 510

Cocoa N.07/kg. 5/ none 1,300

Rubber 60 2/3% none 700

1/ Based on price paid by the Commodity Boards in March 1983.

2/ At 1983 prices, N.20/kg. amounts to an ad valorem tariff rate of 73.5percent, based on a CIF price (Lagos) of N272/metric ton.

3/ Licenses must be issued to Federal, State or Local Government agencies.

4/ Unless imported by a "manufacturer with approved user status, in which casethey may be imported without duty.

5/ At 1983 prices, N.07/kg. amounts to an ad valorem tariff rate of 5.6 percentbased on a CIF price (Lagos) of N1246/metric ton.

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ANNEX VPage 3 of 17

5. Since 1983, the Government has announced a new tariff regime for theagricultural sector. The new trade policy seeks to strike a balance betweenpromoting domestic production and countering the effects of continuingdroughts and rinderpest epidemics, which have cut the availability of grainson the domestic market and created serious food shortages. Thus, the policycalls for: (i) raising tariffs on most selected imports of agriculturalproducts (except wheat) to protect local producers; (ii) abolishing tariffs onimports of agricultural equipment; (iII) exempting traditional foodstuffs fromimport duty if they enter Nigeria overland from neighboring countries; and(iv) permitting imports of rice and maize to continue until domesticproduction is able to meet national needs. Although the tariffs on riceand maize were raised, the abolition of the wheat tariff will act as adisincentive to the sector; similarly the removal of the tariffs onimports of agricultural equipment will encourage inappropriatemechanization.

Estimated Rates of Protection

6. The following section attempts to assess the combined impact of pasttrade, exchange rate, and other policies on prices of major traded and, to alesser extent, non-traded commodities in the agricultural sector. Pricedistortions, in turn, affect the incentives to produce and consume thecommodity in question.

7. Price distortions stem. from differential rates of protection oftraded goods. These rates can be mensurod Jr. three ways-as nominal rates ofprotection, effective rates of protection, and net effective rates ofprotection. A brief review of the methodology used to measure these rates iscontained in Annex II, aud the results are shown in Table 2. The majorsources of data were World Bank Project Reports and Commodity Prices andProjections, as well e,s Cantral Bank of Nigeria publications. Pricecomparisons are based on the CIF and domestic farmgate prices. 1/

8. Nominal Rates. Nominal rates of protection measure the proportion bywhich domestic prices diverge from world parity prices (i.e., world marketprices adjusted to reflect shipping and handling). This implicitly estab-

1/ There is a question concerning the most appropriate basis for pricecomparisons when production takes place some dlstance from the loca-tion(s) where imports enter the country and when transportation costsconstitute a significant proportion of delivered costs. One approachwould be to use the delivered price of imports to the farmgate, or thenearest market center. Alternatively, the price of the domesticallyproduced commodity at the port-of-entry, adjusted to reflect transporta-tion costs from the producing region, might be considered. If consump-tion of the commodity is widely dispersed, as is the case in Nigeria,then estimating the price distortion at che farmgate will tend to under-estimate the rate of protection. Therefore, it has been necessary toadopt the convention that price comparisons are made at the mid-pointbetween Lagos-the principal port--and the producing region.

- 142 -

ANNEX VPage 4 of 17

lishes a -free trade" basis against which to measure the impact of pricedistortions, but is not necessarily meant to imply that free trade would be anoptimal policy.

9. The estimates of nominal rates of protection presented in Table 2reflect the persistent divergence between domestic prices and world parityprices for different traded commodities. This can be attributed largely toseveral forms of Government intervention-tariffs, quantitative restrictions,and administered prices of the Commodity Boards-the relative importance of-which varies considerably between commodities. With the exception of commodi-ties whose domestic prices are effectively determined by the Commodity Boards(i.e., cotton, and to some extent, cocoa, rubber and palm kernel) theGovernment's use of quantitative restrictions has generally been the mostimportant determinant of domestic prices and, hence, of nominal rates ofprotection.

- 143 -

ANNEX VPage 5 of 17

Table 2: NOMINAL, EFFECTIVE AND NET EFFECTIVE RATES OF PROTECTIONFOR TRADED COMMODITIES

(Percentage)

1979 1980 1981 1982 1983

A. Nominal Rates of Protection 1/

Maize 61 95 188 245 116Rice 1 -4 13 59 ...Groundnuts -1 -11 18Cotton -23 -18 14 16Sorghum 85 67 188 195Cocoa -38 -8 33 26 16Rubber -2 -22 26 ...

B. Effective Rates of Protection 1/

Maize 61 95 189 247 82Rice 1 -14 13 59Groundnuts -1 -11 18Cotton -21 -16 18 20Sorghum 86 67 190 197Cocoa -31 22 138 114 80Rubber -1 -23 34 ...

C. Net Effective Rates of Protection Z/

Maize 6 28 88 127 44Rice -25 -29 -16 18 ...Groundnuts -19 -23 -3Cotton -41 -37 -12 -10Sorghum 45 31 127 132Cocoa -50 -10 83 62 .35Rubber -28 -41 -3

not available

1/ Estimates are based on project average (domestic) farmgate prices andworld parity prices (i.e. CIF/FOB prices Lagos, including port handlingand processing costs when appropriate).

2/ Same as 1/ but adjusted to reflect an exchange rate distortion of 35%.

- 144 -

ANNEX VPage 6 of 17

10. One striking characteristic of the figures in Table 2 is theapparent upward trend in the nominal rates of protection for all commoditiesbetween 1979 and 1982. In addition to changes in import policies during thisperiod, the trend was reinforced by the relative appreciation of the naira(between 1979 and 1984), the decline in world prices of many commodities 1/,and the general increase in domestic prices. The impact of the recent nominaldepreciation of the naira has been more than offset by a continuing rise indomestic prices and the decline in world prices.

11. One important implication of these estimates is that, by 1982-83,domestic prices of traded commodities generally exceeded world prices, in somecases by a considerable margin. This constituted a significant change formany of those commodities, which in 1979 and 1980 had had low or negativenominal rates of protection. If, as the World Bank forecasts, manyinternational commodity prices decline in future, nominal rates of protectionwill rise still further unless there are compensating changes in domesticprices.

12. Effective and Net Effective Rates. Because nominal rates ofprotection take into account only the impact of Government intervention onoutput prices and do not reflect the effects on input prices, they generallydo not provide the most accurate indication of the relative incentive toundertake an activity. Estimates of effective and net effective rates ofprotection are more suitable for this purpose. Effective rates of protection(ERPs) reflect the proportion by which value added for a particular activity,based on presently distorted prices, may exceed the value added that would berealized in the absence of those distortions. 'Net' effective rates ofprotection (NERPs) take the analysis a step further and attempt to reflect theimpact of an overvalued exchange rate.

13. The analysis in this section focuses on estimates of effective ratesof protection based on the traditional methods used by most farmers, and theresults are presented in Table 2. With the exception of cocoa, ERPs aregenerally quite close to the estimates of nominal rates of protection, areflection of the relatively low reliance of traditional farmers onintermediate inputs.

14. The estimates for tree crops were made using input coefficients for

improved techniques, which, in most cases, rely more heavily on subsidizedfertilizer and chemicals. In this connection, it is important to note that thefree-market price for fertilizer--i.e., three to four times the 1982/83 officialprice-was used in estimating input subsidies, since this was the price actuallypaid by many farmers due to excess demand. 'While similar considerations applyto chemical inputs, they constitute a relatively small proportion of the valueof traded inputs for most crops. Farmers using traditional techniques do not

1/ World prices fell as follows: maize by 16 percent, rice by 39percent, groundnuts by 39 percent, cotton by 14 percent, cocoa by 15percent, rubber by 19 percent and palm kernel by 15 percent. Domesticprices increased as follows: maize by 26 percent, rice by 18 percent,cotton by 10 percent and sorghum by 11 nercent.

- 145 -

ANNEX VPage 7 of 17

rely on chemical inputs at all, with the exception of inexpensive seeddressings obtained at unsubsidized prices.

15. Estimates of incentives for non-traded commodities were made using anapproach similar to that for traded commodities. Due to the non-traded natureof these commodities, it was assumed that there is no price distortion on theoutput.l/ And, since traditional techniques in Nigeria use hardly any tradedintermediate inputs, the incentives are close to or equal to zero in allcases. In order to provide some insight into whether the present pricingsystem provides incentives for producers of non-traded goods to adopt bettertechniques, ERPs were also calculated for activities using improved andadvanced technology. The resulting estimates are generally quite low.

16. Estimates of net effective rates of protection for traded commoditiesare also presented in Table 2. These estimates reflect an exchange ratedistortion of 35 percent, which lowers the prices of competing imports andreduces the potential profit margins of domestic producers of exportcommodities. When the impact of the overvalued exchange rate is taken intoaccount, it is clear that actual incentives to producers are less than thosesuggested by the estimates of ERP alone, and that for most crops, for most ofthe period 1979-82, NERPs have been significantly negative, although followinga rising trend to more positive rates in the recent years.

17. When NERP estimates are calculated, it is clear that interventionsince 1979 has consistently provided significant incentives to producers ofonly one major crop (sorghum). While since 1980, incentives have improved forproducers of maize-and since 1981, cocoa-producers of rice, groundnuts,cotton and rubber appear to have received significant disincentives duringmuch of the period.2/ In addition, to the extent that the exchange rate hasbeen overvalued by more than 35% in recent years, all these estimates of NERPswould be overstated. Further, while wheat is hardly grown domestically, thesubstitution effects of the low-duty imports on the demand for other home-grown grains has also provided a serious disincentive.

1/ While this is true in the partial equilibrium framework in which all ofthe analysis of incentives in this report has been carried out, it is probablynot the case that the observed prices are those which would prevail under afree-trade regime. In order to estimate the impact that trade policies andother forms of intervention have had on the prices of non-traded commodities,a detailed general equilibrium model would have to be developed andestimated,a task which would be beyond the scope of this study.

2/ While other factors also influence growth in output, it is worth notingthat patterns of domestic production are generally in line with the estimatesof relative net protection.

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ANNEX VPage 8 of 17

Welfare Effects of Intervention, 1979-82 1/

18. The extensive Government intervention in the markets for tradedagricultural commodities has had an impact on the levels of production andconsumption of these commodities. These changes are associated with shifts inthe welfare of producers and consumers, measured by changes in surplus and thenet economic costs or deadweight loss. 2/ Estimates of changes in producers'and consumers' surplus are of interest because they provide insights into thenature of the implicit subsidies and taxes on consumption and productioninherent in price distortions. Measures of deadweight loss due tointervention indicate the cost to society of distorting prices, a loss ulti-mately borne by producers and consumers. Standard partial equilibriumframework is used in making these estimates. Changes in welfare measures andestimates of deadweight loss are measured against a free-trade norm--that is,in the absence of price distortions. This is not meant to imply that freetrade necessarily represents the optimal policy.

19. The analysis has been carried out for each year covering the period1979-82 and for a range of own-price supply and demand elasticity values.Because reliable estimates for Nigeria are not available, it was necessary toadopt assumptions regarding the own-price supply and demand elasticities;these assumptions were based on estimates obtained for other developingcountries.3/ It should be kept in mind, however, that limitations with thetheoretical framework and the data base require that estimates of the impactof price distortions be interpreted with caution. They should be viewed moreas broad indications of the welfare effects and costs of intervention than asprecise estimates.

20. It is clear from the various estimates presented in Annex III(Tables8-11) that changes in production and consumption of traded commodities due toGovernment intervention vary considerably across crops. They are also verysensitive to the assumed values of price elasticities. In general, it hasbeen found that, until 1981/82 when import restrictions were imposed (and withthe exception of sorghum producers who were subsidized throughout the period),Nigerian producers of the major crops were subsidizing consumers. After the

1/ The methodology used in this analysis is presented in Annex II.

2/ The concepts of producer and consumer surplus and deadweight lossresulting from intervention have long been used in applied welfareanalysis. For a theoretical survey of the alternative approaches tomeasuring producer and consumer surplus, see J. M. Currie, J. A. Martin,and A. Schmitz (1971). For a more recent discussion of the prospectsfor using this framework empirically, see Robert Willig (1976), J. A.Hausman (1981), and Lyn Squire and Anne Case (1982). Finally, for areview of theoreticAl framework and empirical applications, see ErnstLutz and Pasquale L. Scandizzo (1980) and Pasquale L. Scandizzo andColin Bruce (1980).

3/ See the appendix to Scandizzo and Bruce (1980) for a survey ofavailable elasticity estimates.

- 147 -

ANNEX VPage 9 of 17

imposition of QR's, however, the tables were turned, and by 1982 the reversewas beginning to be the case. However, to the extent that the overvaluationof the naira was increasing, a part of the apparent "producer surplus- wasnecessary to compensate producers for the exchange rate distortion thatfavored consumers.

Reform of the Trade, Pricing and Subsidy Systems

21. The exchange rate, trade, pricing and subsidy policies pursued by theGovernment during the 1970's have been biased in favor of non-traded cropsrelative to traded crops and also among traded crops, and have been associatedwith considerable costs in terms of economic efficiency within theagricultural sector. The partial reversal of Government intervention, mainlythrough trade policies, that took place from 1981/82 has apparentlycontributed to increases in the production of such commodities as maize,sorghum, millet, cocoa, and rice, at the expense of other crops, such ascotton, cassava, yam, groundiiuts and rubber.

22. For Nigeria to institute pricing policies that would promote effici-ency, it will be necessary to redress the differential treatment of tradedcommodities. This will require increasing the incentives for traded commodi-ties currently receiving relatively low incentives (such as cotton, groundnutsand rubber), in relation to the protected commodities, such as sorghum andmaize.

23. There are two general areas where reforms are needed: in the relativeincentives among commodities and in the administration and institationalframework used to provide these incentives. Proposed institutional reforms inthe administration of input subsidies and Producer Prices have already beendiscussed in Chapters 2 and 3, respectively. The third area to be consideredis Government use of quantitative restrictions and tariffs to affect relativeincentives.

24. Quantitative Restrictions. Several commodities are particularlyaffected bv the Government's heavy and erratic use of quantitativerestrictions (QRs). Rice, for example, went from being almost freely impoitedin 1978 to being banned, then put under license, then banned again, etc.,which'resulted in dramatic changes in the domestic price of rice. Such priceinstability tends to reduce the apparent value of incentives to producers aswell as cause considerable disruption to consumers and traders who marketdomestic supplies. The Government's policies with respect to wheat illustratea further drawback associated with the use of QRs in conjunction with anovervalued exchange rate and low tariffs. Import licenses for wheat aregranted to millers. who may import the grain very cheaply. The low tariff onwheat (O percent vs. 50 and 55 percent on maize and ricerespectively in 1984 and 1985) only encourages consumers tosubstitute an imported product for domestic products. The growingdemand for wheat products in Nigeria has meant that wheat import

ANNEX V- 148 - Page 10 of 17

licenses command high economic rents, 1/ and liberal import license policies haveled to considerable investment in the milling and baking industries in order toprocess the imported wheat and capture these rents.

25. The drawbacks associated with the use of QRs have been evident inrecent years and there is a clear need to replace them with a tariff system.Given Nigeria's current stabilization problems, the Government will probably haveto continue with some form of foreign exchange budgeting for the foreseeablefuture, and this would entail the continued use of QR's.

26. Nevertheless, there is scope to begin the process of phasing out QRs byraising tariff rates sufficiently to choke off demand at the same level that theQR's would do so; this would ensure that the Government, rather than traders,collects the "rents" that accrue because of the differential between world anddomestic prices. These tariff revenues could be used to finance export subsidiesat the same rate. Movement to a tariff system would reintroduce the link betweenworld and domestic prices for a number of traded commodities. For example, suchmeasures would result in a domestic price of wheat that would link the fragmentedmarkets for domestically grown and imported wheat. For other commodities, theinstitution of a tariff system would represent only the first step.

27. QR's could be eliminated gradually as the foreign exchange constrainteases, and later on, tariffs could be reduced as agricultural production respondsto the higher incentives. There is, however, a trade-off between having aflexible system, on the one hand, and providing continuity and certainty ofincentives to farmers, on the other. Thus, it is recommended that sudden changesin QR's tariffs be avoided and that both tariffs and planned QRs be announcedwell in advance of each planting season.

28. Restructuring Relative Incentives. Incentives for traded commoditiesshould be raised and, to the extent possible, adjusted so that there is lessvariation among agricultural commodities. This can be achieved by a devaluationof the naira along with some increases in agricultural tariffs and a tariffschedule that is more uniform across products. 2/

1/ It is difficult to determine the extent of such rents, largely because theprice of flour is subject to control, although it should be noted thatmillers have unilaterally increased the price of flour in the past. Excessdemand for flour by bakers has led to an informal system between millers andbakers of allocation by quota. Therefore, baking, which comprises anotherrapidly expanding industry, also receives a share of the economic rentsassociated with the importation of wheat.

2/ Owing to the low rate of input use in agriculture, approximately uniformtariffs over agricultural goods are equivalent to approximately equal ratesof effective protection (see also, para. 32). Because, even with a policyof wage restraint, part of a devaluation will inevitably be translated intowage increases, it will be necessary to maintain agricultural tariffs in themedium-term.

ANNEX V

- 149 - Page 11 of 17

29. As a first step, it is proposed to grant most agricultural crops neteffective rates of protection (NERP8) in the range of 25-45 percent in 1982/83prices, which would be equivalent to 40-60 percent in 1984 prices, after changesin the real effective exchange rate are taken into account. 1/ Such a range hasalso been proposed for most industrial activities. 2/

30. It is suggested that agriculture be protected at about the same rate asindustry, rather than below it, as is sometimes recommended for developingcountries. There are three reasons for this. First, labor costs form a higherproportion of total costs in agriculture; thus, the rapid wage increases of the1970s prejudiced the competitiveness of agriculture more than industry. Second,there is a degree of, at least short-run, irreversibility in factor movements outof agriculture. Once labor has moved to occupation in industry and services, ittakes time for it to move back to agriculture especially if skills have beenlost. Since the Nigerian Government wants to maintain a viable agriculturalsector for the post-oil era, it may be important to try to limit the rate ofurban-rural migration in the intervening years. Third, evenness of protection isthe best way to encourage development along lines of comparative advantage.

31. An objective of high rates of protection for agriculture would be toinduce further technological change, via the use of modern inputs and newvarieties. Experience in many countries has shown that price incentives areimportant to the process of diffusion of new production techniques. By the sametoken, if this objective is met through reasonably rapid yield increases, thentariff levels could be reduced in stages. The longer-range goal should be toreduce the levels of net protection for all agricultural activities to 10-15percent.

32. Table 3 presents the tariffs that would yield net effective rates ofprotection of 25-45 percent in 1982/83 prices, assuming that the tariffs wereaccompanied by devaluation of the naira to parity with the dollar, as earlierresearch has proposed, and that effective subsidies for fertilizers were reduced

1/ These tariff rates were based on the assumption of the devaluation takingplace in 1984. If instead the naira reaches parity with the dollar by June1985, the "equivalent" rates (adjusted for the appreciation in the realeffective exchange rate) would be 100-130 percent.

2/ In the context of the proposed Structural Adjustment Loan (SAI). Althoughthese rates might appear much higher than those proposed in the SAL, thedifference is due entirely to an updating, to take account of the change inthe real effective exchange rate.

ANNEX V- 150 - Page 12 of 17

to 25 percent of the world price. In most cases, the required tariffs are notgreatly different from the target rates of net effective protection, a reflectionof the generally high value-added to gross output ratios. 1/

Table 3: TARIFF/SUBSIDY AND PRICE ESTIMATES FORPOLICY REFORM PROPOSALS

(1982-83)

Net Eff. Rate of Prot. of 25 Net Eff. Rate of Prot. of 45Commodity Tariff Domestic Price Tariff Domestic Price

(Z7 N/t (Z) N/t

Maize 28 230 50 267Rice 26 515 47 597Groundnuys 25 479 46 555Cotton a 26 887 47 1,029Sorghug, 29 235 52 272Cocoa - (13) 2,004 (23) 2,187Wheat 25 263 45 305Rubber b/ (21) 1,278 (38) 1,461

* These tariff (subsidy) proposals can be updated to 83/84 levels by theamount (13.8 percent) of the real exchange rate appreciation that took placein 1983.

Assumes that cotton seeds continue to be distributed without cost tofarmers.

Assumes the use of improved techniques in production. Also note that asthese are exported commodities, it is proposed that export subsidies, whichequal to the 'tariff rates' presented, be introduced.

1/ This analysis assumes that commodities are produced using a Leontieftechnology (i.e., inputs are used in fixed proportions). Because the greatpreponderance of agricul.ural output is produced by small farmers usingtraditional techniques with low levels of traded inputs, coefficientsreflecting improved techniques have been used only for tree crops. Thissignificantly simplifies the analysis.

ANNEX VPage 13 of 17

- 151 -

33. Impact on imports and Domestic Production. Table 4 shows the potentialimpact that a tariff schedule in the middle of the 40-60Z range, of around 50percent (for 1984 prices), would have on exports and imports of the majoragricultural commodities, along with the potential impact of a free-trade option,on the one hand, and still higher tariffs, on the other. This table wasdeveloped on the basis of a preliminary or pilot sector model (described morefully in Annex IV), through which several tariff options were explored. All theoptions are compared with a 1982 base case.

- 152 -ANNEX VPage 14 of 17

Table 4. TRADE AND PRODUCTION EFFECTS OFALTERNATIVE TARIFF STRUCTURES

(thousand MT)

1982 1984 Cases (with Devaluation) a/

Base 35% devaluation Tariff Options

CaLse NoTariffs Ti T2

Imoorts

Maize 345 555 205 121

Rice 530 671 - 79

Wheat 887 843 667 577

Groundnuts - 5s' - -

Sorghum - SOO* 500 -

Production

Maize 1,098 975 1,194 1,234

Rice 525 460 1.05 976

Sorghum 3,603 3,185 - 3,185 3,545

All staples 36,781 36,645 37,514 37,835

Cotton 160 160 160 147

Groundnuts 630 580 630 660

Vegetables 1,850 1,764 1,842 1.900

a/ in 1984 prices

Crop gSOuDs

1. Staples: maize, sorghum, millet, rice, yams, cassava, cocoyams.

2. Vegetables: cowpeas, pepper, okra, melon, calabash, sweet potatoes,

tomatoes.

Definition of tariff oDtions (%)

Tl T2

Maize so 70Rice 47 soWheat 4S 70Groundauts 46 ;0Sorghum 52

*Solution at arbitrary upper bound.

*Quota imposed to prohibit imports.

AITEX V-153 - Page 15 of 17

34. However, before discussing the results, a caveat is in order. Theresults outlined below should be treated with caution and viewed mainly asindicative of broad magnitudes and trends. This is because the model is stillin a preliminary or pilot form, partly due to data weaknesses, partly to lackof reliable data (e.g., on fertilizer-yield responses), and partly to lack ofaccess to some data (e.g., on the tree-crop sector). Data on productionlevels, especially of root crops (see Annex 1), is particularly deficient, andprice series are highly variable and spotty. Estimates of productioncoefficients (crop budgets) are based on World Bank project reports. The factthat the tree-crop sector is omitted is perhaps not too important for the mainapplication of -he model here-to trade and tariff policy-since the cropsprincipally ar.ected are all in the non-tree crop sector.

35. The sector model indicates that, in 1984 prices, a tariff schedule ofaround 50 percent (Ti in Table 4) which yields a uniform NERP of 45 percent wouldresult in some lowering of imports below their 1982 levels, and that there wouldbe some positive, though small, response in overall production levels. Thelatter may be underestimated, however, as the model does not capture the dynamicproductivity effects of increased investment in the sector that should come fromImproved incentives. These same benefits could, of course, be more easilyachieved with a bigger devaluation.

36. As can be seen from Table 4, the model indicates that a 35 percentdevaluation alone in 1984 prices would increase grain imports over their 1982levels, even with higher real world prices and with devaluation. (The worldprice assumptions used in this analysis are shown in the notes to Annex IV,Table 10.) Imports of maize and rice would increase, and sorghum and groundnutimports would be substantial if permitted. Wheat imports would decline slightlybecause of the devaluation. Clearly, such an option would have disincentiveeffects on domestic production.

37. The other tariff alternative would significantly reduce imports ofnearly all grains from the "35 percent devaluation only' case. However,sorghum imports would continue to be attractive in economic terms. Sorghum,in fact, appears to be the least competitive of the traded or potentiallytraded crops, a reflection of Nigeria's low sorghum yields. Domesticproduction of rice appears to be more nearly competitive with foreign sources,although this conclusion is questionable, as its relatively favorableprospects depend on whether production could be doubled without significantlyraising unit costs of production. The model shows most rice production ascoming from Niger state and the southeast, which corresponds to reality. Italso sbows the bulk of any expansion coming from Niger, plus a littleadditional production from the northern states. Hence, a more definitivejudgment on the import-competing potential of Nigerian rice could be made byreviewing its prospects in Bida and other parts of Niger state.

38. Fiscal Imnact. One benefit of tariffs, as opposed to QRs, would bein the fiscal domain. Over the period 1977-81, for example, a 30 percenttariff on imports of maize, wheat and rice would have generated more thanenough revenue to fiuance the annual export subsidies on cocoa, rubber andpalm kernel. Thus, a system of tariffs on grain imports combined withsubsidies on tree-crop exports could be both self-liquidating in fiscal terms

- 154 - ANNE]X VPage 16 of 17

and provide comparable degrees of protection to export and import-substitutioncrops. Of course, if domestic production responcLs significantly, then importsand hence tariff revenues will decline, but when that occurs, one of theobjectives of the protection scheme will have been realized.

39. Impact on Prices. If export crops are not to be discriminatedagainst, it will be necessary to provide subsidies for exports, at ratescommensurate with tariffs on imports. At present, exports of agriculturalcommodities are handled exclusively by the Commodity Boards, which haveprovided an implicit export subsidy whenever Producer Prices were set aboveworld prices. The proposed 'tariff rates' would constitute the approximaterates of subsidy on the FOB value of exports. This approach would eliminatethe present bias against exports Inherent in the overvalued exchange rate andprice distortions. 1/

40. The impact that reform of the system of intervention in traded commo-dity markets would have on the prices of non-traded commodities will depend onthe income elasticities and the cross-elasticities of supply and demand. Tothe extent that resources are shifted from producing non-traded commodities totraded goods, the prices of the former would be expected to rise. The pointto bear in mind is that tariffs and other measures which raise the price oftraded goods will affect prices and output levels of non-traded goods.

41. Table 3 shows the 1982/83 domestic prices of the principal tradedcommodities that would result from a tariff regime that yielded NERPs of 25-45percent. Assuming a net effective rate of protection of 25 percent, forexample, the price of sorghum would decline by about 37 percent from the 1982average farmgate price and the price of cotton would increase by 74 percent.These changes in domestic prices could be achieved without large changes inthe tariffs for most of the major commodities. The sector model used toanalyze the potential impact of higher tariffs indicates that the overall costto consumers of a rise in tariff rates would be minimal (a 3 percent rise inthe price index for all staples).

42. The Welfare Effects. The welfare effects of the proposed reforms.have also been examined, with reference both to the free trade norm and to1982 levels. Estimates of the various parameters are presented inAnnex III (tables 20-24). The proposals would entail a substantialreallocation of resources in the agricultural sector. As a result of therelaxation of import restrictions and realignment of relative incentives, anumber of commodities that are not presently traded to any great extent, such assorghum, would become more actively traded. Measured against 1982 levels,imports of maize and sorghum would be expected to increase substantially, whileimports of rice. wheat and cotton would decline. Exports of groundnuts(presently not traded through official channels) cocoa, and rubber would rise.

1/ For a more general discussion of the prospects for aon-oil exports,see Nigeria - Non-Oil Export Prospects, World Bank Report No. 3771-UNI,June 30, 1982.

- 155 - KANEX VPage 17 of 17

43. The proposed reforms would reduce substantially the economic costs ofintervention and thereby increase social welfare. 1/ Gains in efficiency comelargely as a result of significant reductions in deadweight loss forcommodities that had recently received very high levels of nominal protection,mainly sorghum and maize. The reforms would continue to subsidize productionat the expense of consumers, although the loss in consumers' surplus would besomewhat less than existing levels. 2/ Tariff revenues would increase fromexisting levels and the additional Cost in terms of foreign exchange would notbe large.

44. While the preceding analysis suggests that providing more evenincentives across traded commodities can be expected to improve economicefficiency, it is important to consider the need for reform in a broadercontext. The overvalued exchange rate and erratic trade policies haveexacerbated agricultural production disincentives. They have also seriouslydistorted industrial incentives and, because of the high returns on importingand trading, have disrupted labor markets. A move towards more uniform neteffective rates of protection would be expected to ameliorate these problemsand eventually to lead to more socially productive production. However, thereare a number of other impediments to expanding sectoral output, such as creditconstraints, inadequate infrastructure, etc. Thus, reform of trade policy alone,while helpful, is unlikely to be fully successful in restoring the ability toexport agricultural commodities in the medium and long term.

,' Deadweight loss as a proportion of sector GDP would amount to lessthan 1 percent under the proposal to establish the net effective rate ofprotection (NERP) at 25 percent, and would range from 1-3 percent underthe more protective proposal. This coastitutes a significant decreasefrom the estimated total deadweight loss in 1982, which amounted to 3-10percent,

2! If the net tariff revenues were transferred to consumers in someform (i.e., through reduced taxes), rlhe annual loss in welfare wouldamount to approximately N407-412 million with the lower level ofprotection and N708-861 million under the proposal for higher pro-tection. In contrast, the increase In the producers' welfare throughthese subsidies would amount to appoximately N343-388 million or 1661-707 million, depending upon the level of protection. As noted pre-viously, the difference between these measures constitutes the netsocia'l costs of intervention and would range from approximately N19-69million annually under the proposal for lower protection and from N60--200 million under the higher protection proposal, depending on elas-ticities. These estimates clearly suggest that the social costs ofintervention would be substantial, particularly if effective rates ofprotection as high as 45 percent are introduced.

nigeria agrcultural pricing policy - world bank€¦ · could co-ordinate trade, exchange rate,...

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