Authors : N.M. Nkang , H.M. Ndifon and E.O. Edet
Abstract: The response of farmers to price and non-price incentives in Sub-Saharan African (SSA) agriculture has received wide attention in the past because of the raging controversy among economists as to whether farmers in SSA are responsive to economic incentives and to what degree. Apart from this, there has been the issue of whether farmers’ response to prices depends more or less on the nature of the price variable (nominal or real) used. This study addresses these concerns using maize supply responsiveness in Nigeria as a case in point. It compares the current results with a previous study that used nominal prices. Results show that the response of maize farmers to real maize price is very high, with an estimated elasticity of 2.5259 in the short-run and 1.5038 in the long-run. These figures are close to 2.7588 and 1.9925 in the short- and long-run, respectively obtained from the previous study. By the same token, the response of maize supply, to the real price of rice is equally high, with a cross price elasticity of -4.6414 in the short-run and -2.5798 in the long-run, which are clearly larger than -2.6771 and -1.8033 in the short and long-run correspondingly obtained with nominal prices. The speed of adjustment of the real prices of maize and rice from short-run disequilibria to changes in maize supply in an effort to attain long-run equilibrium is 240.09% within one year, signalling an overreaction of maize farmers to changes in real prices of maize in the short-run. Among other interventions, the paper recommends a policy package that would boost the demand for maize by stimulating its utilization by small and medium enterprises and large scale industries, while at the same time reducing inflation, since farmers’ adjustment to short-run changes in price is faster with increase in real prices than nominal prices. Moreover, investment in high-yielding and early-maturing hybrids of maize and rice should be furthered to take care of the problem of substitution in the production of maize in relation to rice.
N.M. Nkang , H.M. Ndifon and E.O. Edet , 2007. Maize Supply Response to Changes in Real Prices in Nigeria:A Vector Error Correction Approach . Agricultural Journal, 2: 419-425.