Agricultural supply response for export crops: Effects of world price and exchange rate in Niger

Date of Completion

January 2001

Keywords

Economics, Agricultural

Degree

Ph.D.

Abstract

Overvaluation of exchange rate is often mentioned in the literature as a cause of explaining the declining revenue from agricultural exports in Sub-Saharan countries of Africa. This research analyzes how rural producers, the main interest group in Niger responded to change in exchange rate. It starts from an aggregate view of the effects of world price and exchange rate on agricultural supply and trade, using a profit function approach. It then moves to a micro-economic view and provides a district level analysis before and after the CFA devaluation. In addition, it checks whether markets are spatially integrated in Niger, one of the necessary conditions of success of direct and indirect pricing policies. ^ Two main conclusions emerge from this research. First, the results run counter to the common pessimism regarding Nigerian farmers ability to respond to price incentives. Supply response elasticities are found positive and significant for almost all export crops. The price elasticities of supply are relatively higher for peanut and cotton (1.5 and 0.8 respectively) compared to onion and cowpea (0.3 and 0.04 respectively). The latter results may be explained by the limiting factors that constrain production (lack of irrigated land for onion and cotton) or the low degree of tradedness for some crops (onion and cowpea). Impact multipliers are derived from the model, indicating that depreciation of nominal exchange rate led to a rise in supply and exports for all crops. The exchange rate elasticity of peanut supply and exports is higher compared to the other crops confirming that the more tradable a commodity is, the more likely macro-policies affecting the real exchange rate will have an impact on its market. ^ Second, the district level analysis shows a slight positive impact of the devaluation on cowpea acreage. Cowpea markets are definitely found spatially integrated (medium connection), eliminating any doubt about bad market integration limiting pricing policy in its market. In addition, we have found the instability of the Naira parallel exchange rate as being an important factor undermining the effects of the CFA devaluation. As policy implication, this research suggests that government programs and donors devote more attention on policies of removing physical constraints, improving crops' degree of tradedness, and stabilizing the Naira parallel exchange rate in order to achieve the effectiveness of policy goals in the agricultural sector. ^

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