Tracking Price Transmission in Nigeria

Since the food price crisis of 2007-2008, there has been significant attention paid to the issue of price transmission from global to national markets, particularly in developing regions such as Africa south of the Sahara. A new paper published in the Journal of Agricultural Economics  looks at seven key food security crops in Nigeria - maize, millet, sorghum, rice, cassava, yams, and cowpeas - to assess local (both urban and rural), regional, and international price transmission. The study examines how and why prices fluctuate in various conditions and examines the relationships between global, regional, and internal Nigerian prices for these staple crops.

Nigeria is interesting as a case study for price transmission because of the country’s large geographical size and because it is an influential food market in West Africa as a whole. Understanding how markets for staple foods within the country and the region are linked will allow for better design and implementation of market interventions and food policies.

World prices were obtained from the World Bank (WB), International Monetary Fund (IMF), Global Information and Early Warning System (GIEWS), and the Southern African Exchange (SAFEX). Global maize and rice data also came from UNComtrade, which has records of imports for Nigeria since 1995.  Prices for neighboring countries (Benin, Togo, Ghana, Burkina Faso, Niger, Chad, and Cameroon) were also obtained from GIEWS and the WFP Price Data Analysis Tool.

Two cities from each country were evaluated to add regional variation to the findings; one inland city connected by roads to Nigeria and one port city, more connected to markets outside of West Africa. Within Nigeria, prices were obtained from Nigerian National Bureau of Statistics. Urban prices are available from 2001-2010, while rural prices were only available from 2007-2010. The exchange rate used was the Nigerian Naira per US dollar from the IMF’s International Financial Statistics database (IFS).

The results show that local conditions (weather conditions, supply-use balances, etc.) and tradability are both important factors in price transmission for all of the studied crops. These factors appear to be more important than international price spikes in determining prices in all domestic markets, especially in rural areas. In addition, price spikes appear to spill over from neighboring countries more so than from global markets.

While these general findings hold true across the board for all of the studied crops, the study also identified important differences across and within crops.

For maize, the results show that prices in the majority of analyzed markets co-move to a certain extent. Nigerian maize prices adjust to world prices, but with a long lag time. Trade in coarse grain is conducted mostly regionally. In fact, for some maize markets, the links between neighboring country prices and Nigerian markets are closer than the links between markets within Nigeria. Domestic rural and domestic urban markets do not appear to be well–integrated, as rural prices do not co-move with those in urban areas. The authors report that these results are generally similar for millet and sorghum.

Results for imported rice show that ties with world prices appear stronger than those seen for coarse grains, especially in urban areas. The study also found that prices for imported rice are more strongly tied among domestic urban areas than among domestic urban and rural areas. Findings for local rice prices were similar to those for imported rice, with strong ties seen between domestic and world markets. Urban-to-rural ties appear generally stronger for local rice compared to imported rice for all states except Lagos and Rivers (where major ports are located). Overall, correspondence between world rice prices and domestic urban rice prices (both imported and local) is strong for all regions.

For cassava, the results were more regionally varied. For example, in Lagos, the link between global and local markets is stronger than the link between regional and local markets; however, the opposite is true for cassava prices in the state of Kano, where links to regional markets appear stronger than links to global markets. Similarly, transmission of cassava prices appears to happen quickly between urban and rural domestic markets in Southern Nigeria but more slowly among markets in Northern Nigeria.

The study finds that yam prices in Nigeria are relatively more independent from global price movements than the other studied crops. Domestically, yam prices appear to move quickly between urban and rural markets and from commercial hubs to urban markets.

Cowpea prices appear to be more closely linked within markets in Nigeria than between Nigerian markets and international markets. Within those domestic markets, prices move more closely between urban and rural markets than between commercial hubs and urban markets.

The study’s final key finding is that, especially for imported rice and coarse grain prices, there exist either substantial transactions costs or quality differences that result in premiums for imported foods and/or mark-ups captured by traders with more market power. They conclude that further investigation into the structure of markets is important to ascertain the extent of the role of market power in domestic maize and rice markets.

By: Jenn Campus

Photo credit:IFPRI/Milo Mitchell