Presentation Nigeria D

Political Economy of Public Policy

Agricultural distortions in Nigeria By Marlen and Ubong On 18 November 2008

Overview • Important changes of policies over the years • Interventions vary significantly among regions and commodities  Taxation of export commodities  Tariff and non-tariff barriers on imports,  Budgetary payments

Fundamental structural transformation of the economy

Share of agriculture in Nigeria

Agricultural production

Agricultural production • • • •

Mainly root crops, Since 1960 production of cassava quadrupled, Yams production increased sixfold Below average production for traditional crops (Cocoa, groundnuts, oil palm fruit, cereals,...)

Policies before independence • Focus was on exports of agricultural raw materials (cocoa, cotton, groundnuts and palm oil) • Trade occured mainly with Britain, • No support for subsistence crops; majority of farmers did not benefit

Agricultural policy after independence Four phases can be identified: Phase I (1960s): export-oriented; fiscal revenues through export taxation. Phase II (1970 -1986): strong governmental intervention; elimination of export taxes, reduction of import tariffs on agricultural inputs, guaranteed minimum prices, fertilizer subsidies, credit support schemes → Nigeria becomes large-scale importer of agricultural and food products

Agricultural policy after independence Phase III (1987 -1999): Government removes policies; devaluation of the currency → government wants to enhance price competitiveness of export commodities and import-competing goods Attempts to diversify production and export base (through non-fuel export subsidies) and improve self-sufficiency (via import bans) Phase IV (from 1999): Adoption of ECOWAS common external tariff: reduction in import duties, agreement that Nigeria will abandon its special tariffs on sensitive products and quantitative restrictions.

Exchange rate policies High petroleum prices → Capital inflows due to oil industry → real exchange appreciation → real appreciation of the currency → reduction of agricultural exports OVERVALUATION OF THE CURRENCY

Substantial differences between official exchange rate and black market rate: • Constrains agricultural exports, • Protects domestic farmers as imports become too expensive.

Border taxation In order to achieve balance of payment the government introduced import tariffs, export duties and quantitative restrictions.

Domestic market price support 1977: Reform of Marketing Boards; set guaranteed minimum prices for maize, millet, sorghum, wheat, rice and cowpeas →Little effects of official floor prices because they were set to low

Non-tariff measures • Import bans: In 2005, almost a fifth of all products in the tariff schedule could not be legally imported. • Frequent changes in trade regulations • Trade barriers in the logistic sector such as long clearance procedures and high unloading costs.

Budgetary payments Direct spending policies →help to improve rural infrastructure and institutions, subsidize production inputs and agricultural credit.

Fertilizer subsidies: support production of export crops and partially food crops. Concessional credit and credit guarantees: guarantee cover for loans to individual farms and farmer‘s cooperative Since late 1980s majority of guarantees loans are to support food crop production.

Recent developments • Adoption of common external tariff (CET) in 2005 in order to reform trade policy. • Liberalisation with focus on agricultural products that have seen high degree of protection previously. • It is expected that import tariffs fall from 41 % to 13 % → increases relative purchasing power of the poor!

Summary In Nigeria, during the pre-reform period trade Policy and exchange rate management created Significant disincentives for the agricultural export sector. The sector was taxed explicitly through export taxes and commodity board Commissions and implicitly through industrial Protection and macro-economic policies Unfavourable to agriculture.

Conclusion In a nutshell,this study has demonstrated that the poor performance of the Nigerian agricultural sector was due to changes(distortions) in incentives farmers were facing. However, getting agricultural incentives right is of utmost importance not only to enhance economic development and growth but also to directly fight poverty especially in the rural areas where agriculture is the main source of livelihood.

References • Peter Walkenhorst (2007),Distortions to Agricultural incentives in Nigeria: The World Bank • David Colman,Aja Okorie (1998) The effect of Structural Adjustment on the Nigerian Agricultural Export Sector: John Wiley and Sons • Iyoha M.A and C.O.Itsede (2002) Nigerian Economy: Structure,Growth and Development,Benin City: Mindex Publishing

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