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
THANK YOU!