ANALYSIS OF SUPPLY RESPONSE AND PRICE RISK ON RICE PRODUCTION IN NIGERIA

Rice, which is one of the major sources of energy, vital nutrients and a staple food, is in short supply in many Nigerian households. Nigeria is among many African countries that have engaged in agricultural liberalization since 1986 in the hope that reforms emphasizing price incentives will encourage producers to respond. Hitherto, the reforms seem to have introduced greater uncertainty into the market given increasing rates of price volatility (Ajetomobi 2010). This study therefore models supply responses in Nigerian Rice production that include the standard arguments as well as price risk. Statistical information on domestic and imported quantities of rice was obtained for 41 years (1970 to 2011) from the AGROSTAT system of the statistical division of the Food and Agriculture Organization (FAO), Federal Ministry of Agriculture statistical bulletins, Central Bank of Nigeria statistical bulletins and National Bureau of Statistic. (NBS). The data are analyzed using descriptive, equilibrium output supply function and co-integration models and vector autoregressive distributed lag. Producer price of rice was positive and statistically significant with coefficient 0.6334. The output response of rice to hectarage was statistically significant but was negative with the coefficient 1.5135. Rice importation showed a negative sign and was statistically significant in Nigeria at 0.05, with Changes in output also responsive to changes in price. There is the tendency for the price of agricultural products to drop, which may consequently reduce the level of domestic production and thus discourage commercial production. The results indicate that producers are more responsive not only to price and non-price factor but to price risk and exchange rate. It is therefore imperative to reduce price risk as to increase the response of producer to supply by bridging the gap in production.