Time Series Trend Analysis on Nigerian Food Prices using the Box Jenkins ARIMA Model.

ABSTRACT

The study examined the price trend of some selected food grains in Ogun State, Nigeria, using descriptive statistics, graphical representation and growth model to analyze its dynamic behaviour over the period of 1988-2012. The study was based on secondary data obtained from Ogun State Agricultural Development Programme for the period (1988-2012) and it covered the rural and urban monthly retail prices of three (3) food grains viz: maize (white and yellow), rice and cowpea (white and brown). Results of analysis revealed a consistent long-term movement or change in the prices of the food grains for both markets.  While price fluctuation was observed more with maize and cowpea, minimal adjustments were observed in rice. Exponential regression analysis showed a positive significant coefficient i.e. an upward trend in prices of both rural and urban markets with a significant F-statistics (p<0.01). The highest growth rate was seen in white cowpea in the urban market (i.e. 4.78%) while the least growth rate was in white maize in the rural market (i.e. 3.50%).

BACKGROUND TO THE STUDY

Food crops, especially grains, have always been an important staple food in Nigeria. The consumption cuts across cultures, ages and regions. They are an important part of the diet of an average Nigerian judging from the high proportion consumed. However, in the past few years, there had been consistent increase in the prices of food crops thereby making it to be beyond the reach of low income earners. Okuneye ( 2001) observed that the rising costs of food prices have roots in policies and programmes of past governments. In particular, after the Structural Adjustment Programme (SAP) period not much attention was paid to agriculture and food production. As a result, food prices have continued to rise. The resultant effects of these are the problems of malnutrition, household food insecurity and restricted access to nutritious and sufficient food, culminating in greater effect of poverty on many Nigerians. Since 2003, interna tional prices of a wide range of commodities have surged upward in a dramatic fashion. In many cases more than doubling within a few years and in some cases a few months.

A surge in the price of food is of special concern to the world’s poor because many impoverished people depend upon food production for their livelihood, and virtually all poor people spend large portions of their household income on food. Therefore, sharply rising prices offer few means of substitution and adjustment especially for the urban poor, and there are justifiable concerns that millions of people may be plunged into poverty by this crisis (Headey and Fan, 2008). Dorosh (2013) further pointed out that international price for major food commodities such as rice, maize and wheat escalated two record times in three years.

The price of major cereals surged in the second half of 2007 and the first half of 2008 to reach record levels in nominal US dollar terms, before falling again in the second half of 2008. Prices surged again in mid-2010 to June 2011 by 43% in real terms and in the second half of 2011 the index stabilized but at a level about 10% higher than the previous value in 2008 (Conceição et al., 2011). In Nigeria, at the level of high food prices, according to FEWSNET (2008) “most urban and rural markets are exhibiting historically high prices since 2007 and continued to worsen in April 2008. Some analyst in Nigeria believed that the deregulation of the downstream sector of the petroleum resources and the poor state of rural road networks have manifested into high cost of transporting produce between surplus and deficit areas. The increased cost of transportation meant that poor resource farmers have to depend on middlemen to transport food crops from the producing to the consumption areas. This gives middlemen the opportunity to exploit farmers’ imperfect knowledge of the market to offer low prices for farm produce (Oladapo and Momoh, 2007).

According to Agiri (2000), there is no efficient pricing and marketing system for agricultural products in Nigeria. The lack of reliable market outlets forces the farmers to sell their produce at whatever price they can get at the farm gate. Therefore, fluctuation in the market prices of food is a common phenomenon in the Nigerian markets. This is because in periods of glut, prices are forced down since farmers are compelled to sell their produce at low prices to avoid deterioration and loss of produce. On the other hand, in seasons of scarcity, prices of food shoot up. Thus, prices of agricultural produce vary at different times of the season depending on storage costs and some other factors which are location specific. In view of its direct impact on the standard of living of most Nigerians, fluctuations in the prices of agricultural products have become of great concern to economists and policy makers. Therefore, this paper examines the trend in prices of some selected food crops in the rural and urban markets as well as determines the variations in their prices over time.

Trends in prices of food grains in Nigeria

Trend movement as defined by Olayemi (1977) is a consistent long-term movement or change in prices. It is usually measured in terms of rates of increase or decrease in prices over long term periods. Trend in agricultural prices is associated with general inflation and deflation in the economy and with factors specific to agricultural products which include increases in population, changes in income and technology. On the other hand, Odozi and Omonona (2012) also refer to price instability as fluctuation in prices over time and reflect the short term disequilibria between supply and demand. In most studies, the coefficient of variation defined as the standard deviation divided by the mean is used to measure the fluctuation in price series. In recent years, there has been a welldocumented, dramatic increase in world food prices. From 2006 through early 2008, Jensena and Miller (2010) pointed out that the FAO Food Price Index increased by 73%, with across-the-board increases in meat (16%), dairy (100%), oils and fats (144%), and cereals (129%). Within cereals, the price of rice increased by approximately 117%, wheat increased by 100%, and maize by 65%. As a result, there has been considerable concern that such large price increases may lead to increased malnutrition, especially among the poor in the developing world (Jensena,and Miller, 2010). According to Abboth and Makeham (1990), most farm products are available only in small quantities at the start of the marketing season. After that, their supply builds up to a peak following which supplies gradually diminish until the produce supply is finished. The first supply at the market usually fetches a good price because of their newness. At this stage, only the rich can afford to buy. As the season continues, deliveries increase, prices fall so that market suppliers are discouraged. Eventually, deliveries will fall off steadily until supply is concluded. Low prices for several seasons lead many producers to reduce the amount they plant. This action will ultimately result in prices going up. Eventually, the area planted and market supplies will expand once more and so the cycle continues.

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