THE IMPACT OF FOOD IMPORTATION ON FOOD PRODUCTION: THE CASE OF RICE IMPORTATION AND PRODUCTION
TABLE OF CONTENT
Title Page………………..i
Certification……………ii
Dedication………………iii
Acknowledgment……….iv
Table of content………v
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
1.2 Problem Statement
1.3 Objectives of the Study
1.4 Research Hypotheses
1.5 Significance of the Study
1.6 Scope of Study
1.7 Structure of the Study
CHAPTER TWO
LITERATURE REVIEW
2.1 Theoretical Literature
2.1.1 Theory of Comparative Advantage
2.1.2 Malthusian Theory of Population
2.1.3 Import Demand Theory
2.1.4 Human Capital Theory
2.1.5 Import Substitution (IS)/Export Promotion Theory (EP)
2.2 Evolution of Agricultural/Food Production and Trade
Policies in Nigeria
2.2.1 The Agricultural and Trade Policies in Pre- 1970 era (1950-
1969)
2.2.2 The Agricultural and Trade Policies during Pre- SAP era
(1970-1985)
2.2.3 The Agricultural Trade Policies in SAP era (1986-1994)
2.2.4 The Agricultural Trade Policies in Post-SAP era (1995-
1999)
2.2.5 The Agricultural Trade Policies in the New era (2000 to
Date)
2.3. Empirical Literature
2.4 Limitations of Previous Studies
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Model Specification
3.2 Specification of the dummy.
3.3 Estimation Technique
3.4 Pre-Estimation Tests
3.4.1 Unit Root Test
3.4.2 Co-integration test
3.4.3 Error Correction Mechanism
3.5 Data Source
CHAPTER FOUR
PRESENTATION AND INTERPRETATION OF RESULTS
4.1 Impact of rice importation on rice production
4.2 Evaluation of working hypotheses
4.2.1 Test of Working Hypothesis 1
4.2.2 Test of working Hypothesis 2
4.2.3 Test of working hypothesis 3
CHAPTER FIVE
SUMMARY OF FINDINGS, RECOMMENDATION AND
CONCLUSION
5.1 Summary of Findings
5.2 Policy Implications
5.3 Recommendations
5.4 Limitations of the Study
5.5 Suggestions for Further Research
5.6 Conclusion
REFERENCES
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
The agricultural sector was the main stay of the Nigerian economy before independence and immediately after it, until the oil boom of the 1970s. In the period before the 1970s, agriculture provided the needed food for the population as well as serving as a major foreign exchange earner for the country (Alabi and Alabi, 2009). Most government policies have been directed towards accelerating economic development with the ultimate aim of transforming the economy into an industrialized one as well as the welfare of the population (Obiechina, 2007), hence cannot be attained without drastic boost in agricultural sector which is expected to act as a catalysts towards the realization of this goal. The traditional role of agriculture in economic development provides the foundation for this position. The role includes product contribution, market contribution, factor contribution and foreign exchange contribution (Johnston and Mellor, 1961).It is the main source of food for most of the population. It provides the means of livelihood for over 70 percent of the population, a major source of raw materials for the agro-allied industries and a potent source of the much-needed foreign exchange (Alabi, Aigbokhan and Ailemen, 2004).
Rice is one of the world’s most important food crops that serve as a stable food for a large percentage of the world’s population, especially in India, China, other parts of Asia, and Africa. In Nigeria, rice is a vital food consumption staple but has also become an important cash crop where it provides employment for more than 80% of the population in the major producing areas (Okoruwa and Ogundele, 2006). Ayinde et al.(2009), drawing on WARDA (1996), note that Nigeria is both the largest producer and consumer of rice in the West African sub-region. Moreover, Nigeria consumes considerably more rice than it produces (Business Day, 2009), leading to significant imports in recent years (Table 1 – appendix iii).
Over the years, several government programs have attempted to stimulate domestic rice production with the goal of addressing the increasing demand-supply gap and making Nigeria more self sufficient in rice amongst which two of the most recent programs are the Presidential Initiative on Rice (PIR), established in 1999 and the National Program for Food Security (NPFS). There have also been trade policies constituting periods of bans and tarrifs aimed at encouraging local rice production. Despite these policies and programs, domestic rice consumption has continued to outpace domestic production leading to an ever-increasing role for rice imports. As can be seen from Table 1, rice imports have been growing steadily in Nigeria and this growth is expected to continue due to increasing demand resulting from growth in incomes, urbanization, and the associated expansion of fast food restaurants (Daramola, 2005).
In general, of the estimated 5 million metric tons of annual rice consumption in Nigeria, the annual domestic output of rice still hovers around 3.0 million metric tons, leaving the huge gap of about 2 million metric tons annually, a situation, which has continued to encourage dependence on importation. Some of the reasons for the gap are connected with the improper production methods, scarcity and high cost of inputs, rudimentary post - harvest and processing methods, inefficient milling techniques and poor marketing standards particularly in terms of polishing and packaging. Also poor or low mechanization on rice farms means heavy reliance on manual labor to carry out all farm operations Daramola (2005). Another reason is that imported rice is viewed as of better quality than locally produced rice, and that therefore domestic and imported rice are not perfect substitutes. Yet another explanation is that the long history of consuming imported rice in Nigeria has led to habit persistence and consumption inertia, which makes it more difficult for locally produced rice to compete with imported rice, Akaeze (2010). Achieving sustainable economic development in Africa will confront three central challenges: alleviating wide spread poverty, meeting current and future food needs, and efficiently using the natural resource base to ensure sustainability.
Nigeria’s population is estimated at 160 million with an annual growth rate of about 4%, World Bank (2010). Nigeria must then draw lessons from the Malthusian theory as well as follow the Human Capital led growth formula of the Asian Tigers (Singapore, Taiwan, Malaysia) by drawing on comparative advantages in production and import substitution cum export promotion strategies of trade. This means self sufficiency in food which is currently lacking following that the country currently imports much of her food needs to meet local consumption demand. The implication of Nigeria’s food import as opposed to export is becoming ever more crucial to growth and development. The thrust of this paper is to ascertain the impact of rice importation on rice production in Nigeria.
1.2 Problem Statement
The need for a country to attain self sufficiency in food as a panacea for economic development cannot be over emphasised as it is one of the Millennium Development Goals (MDG). Simply put, Nigeria has been clamoring for growth but much of her policies have been targeted at macroeconomic indices such as inflation, Balance of payments, exchange rates, debt profile and so on while little attention has been given to the agricultural sector.
The status of rice in the average Nigerian diet has been transformed from being a luxury food item to that of a staple, taking the place of cassava and yam. Empirical evidence also suggests that the price elasticity of demand for rice is low at the urban market. This last point has been the driver of increasing tariffs in the recent past. The low elasticity means fiscal instrument like tariff can be increased without a corresponding decline in demand because rice is still considered a fast food in many urban centers and government can continue to use high tariff to protect domestic producers without corresponding decline in rice demand. Tariffs for example were high as 100% in 1995 and 2003 and stood at 50% between 1999 and 2002. However despite these high tariffs, domestic production is still not sufficient to meet local demand. Olalokun (1984) noted that prior to 1960 imports were not recorded to have played any significant role in the Nigerian economy as revealed by the fact that agriculture was the largest contributor to the GDP. Alabi et al( 2006) noted that contribution of the petroleum sector to Gross Domestic Product (GDP) has been rising while that of agricultural sector has been declining as resources and attention of policy makers were being focused more on petroleum sector. While the contribution of the petroleum sector was rising and that of agriculture was declining, the share of imports began to rise. From an initial total value import of N 756 million in 1970, total import value rose to N 1.9 trillion in 2003. The food import initial value of N58.5 million in 1970 rose to N 261 billion in 2003 (Central Bank of Nigeria (CBN), 2004).
Furthermore, the demand for rice in Nigeria has been increasing at a much faster rate than in any other African country since the mid 1970s (Food and Agricultural Organization (FAO), 2001). For example, during the 1960s, Nigeria had the lowest per capita annual consumption of rice in the sub region at an annual average of 3kg. Since then, Nigerian per capita consumption levels have grown significantly at 7.3% per annum. Consequently, per capita consumption during the 1980s averaged 18kg and then 22kg in 1995–2000. In an apparent move to respond to the increased per capita consumption of rice in Nigeria, local production boomed, averaging 9.3% per annum. These increases have been traced to vast expansion of rice area at an annual average of 7.9% and to a lesser extent to increases in rice yield of 1.4% per annum (Food and Agricultural Organization (FAO), 2001). In spite of this, the production increase was not sufficient to match the consumption increase. In a bid to address the demand/supply gap, governments have at various times come up with policies and programmes. It is observed that these policies have not been consistent. Thus, the fluctuations in policy and the limited capacity of the Nigerian rice sector to match domestic demand have raised a number of pertinent questions both in policy circles and among economists. For example, what are the factors explaining why domestic rice production lags behind the demand for the commodity in Nigeria? Considering these issues, this study seeks to answer the following questions
1. What is the impact of importation of rice on rice production in Nigeria?
2. What is the impact of government expenditure on rice production in
Nigeria?
3. What is the impact of Balance of Payments on rice production in Nigeria?
1.3 Objectives of the Study
The broad objective of the study is to evaluate the impact of food importation on food production in Nigeria. The specific objectives of this study are:
(1) To ascertain the impact of rice importation on rice production in Nigeria.
(2) To ascertain the impact of government expenditure on rice production in Nigeria.
(3) To ascertain the impact of Balance of Payments on rice production in Nigeria.
1.4 Research Hypotheses
The research hypotheses that will guide this study are stated as follows:
(1) Rice importation does not have impact on Rice production in Nigeria.
(2) Government expenditure on agriculture does not have impact on rice production in Nigeria.
(3) Balance of Payments does not have significant impact on rice production in Nigeria.
1.5 Significance of the Study
The impact of food importation on food production and balance of payment needs to be evaluated for appropriate policy formulation on food import restriction in Nigeria. The Balance of Payment (BOP) equilibrium which measures the extent of transaction between Nigeria and other nations is calculated based on the level of exchange of goods and services in monetary values specifically United States (US) dollar. This study will estimate food importation and production on balance of payment with intention of ascertaining whether they have significant effect on country’s current account balance. The study therefore would be of immense benefit to policy makers, government officials, students, and other stake holders in the economy as it gives direction on how to enhance agricultural policies in Nigeria.
The researcher also expects that this study would raise much awareness on our import position, comparative advantage or disadvantage in rice production, and the general state of the agricultural sector in Nigeria. Also the recommendations from the findings of this study would point the direction in which policy makers can hinge policies. It would also serve as a point of reference for other researchers to build upon.
1.6 Scope of Study
The study focuses on the impact of food importation on food production in Nigeria as it involves rice importation and production. The study was based on data relating to rice production and importation from 1980 to 2011 in Nigeria.
1.7 Structure of the Study
The study is structured into five chapters. The first chapter is introduction, it deals on the background of the study which entails the take off of the study, the problem statement which defines the challenges that prompted the need for the study, after which the objective of study comes, which defines the exact direction the study is taking, the research hypothesis, the significance of the study, scope and structure of the study. The chapter two which is the literature review deals on the theoretical literature, empirical literature and the limitations of the previous studies . the chapter three invoves the model specification, specification of the dummy, estimation technique, pre-estimation test, unit root test, co-integration test, error correction mechanism and data source. The chapter four is presentation and interpretation of results which involves the impact of rice importation on rice production, evaluation of working hypothesis, test of working hypothesis 1, hypothesis 2 and hypothesis 3. The last chapter (chapter five) shows summary, policy implication and conclusion of the study.
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