The Impact Of Exchange Rate On Export Of Agricultural Product In Nigeria

Project and Seminar Material for Economics

The Impact Of Exchange Rate On Export Of Agricultural Product In Nigeria


Abstract


This research work investigates the impact of exchange rate on export of agricultural products by the monetary authorities of Nigeria, using the least squares Statistical package .The data utilized for least square spanned between 1998-2008.

From the finding of this research work, it was observed that the success of export of agricultural products critically depends on the exchange rate elasticity of foreign demand for the country’s export. In Nigeria’s case, exports are basically primary in nature i.e. either mineral or agricultural products which at reduced external prices (due to currency devaluation) do not significantly increase export earnings. Since the end result of Nigeria’s flexible exchange rate regime is currency denominated assets in the foreign exchange market in the policy is not ideal for Nigeria’s situation. Thus, the paper concludes by recommending among others currency appreciation combined with economic stability and liberalized export orientation regime.


Chapter One


Introduction

1.1 Background of Study

One of the most dramatic events in Nigeria over the past decade was the devaluation of the Nigeria naira with the adoption of structural adjustment programme (SAP) in 1986.

Significantly ,this devaluation resulted in changes in the structure and volume of Nigeria’s agricultural export as empirically determined by many researchers (Oyejide, 1986,Ihlmodu,1993; Osuntogun et al,1994; World Bank 1994 the depreciation also increased the prices of agricultural exports and studies have shown a marked increase in volume of agricultural exports over the years .However ,the volatility ,frequency and instability of the exchange rate movement since the beginning of the floating exchange rate raise a concern about the impact of such movements on agricultural trade flows.

Among other measures, the structural adjustment programme (SAP),which started in 1986 abolished the commodity Board, the body that since 1960 had been responsible for organization and purchase of agricultural exports .As a result farmers could sell their products directly to foreign and local processors without any intermediary ,thus obtaining higher prices for their products .This was expected to remove the excessive taxation on farmers products by the erstwhile marketing board and leave producer prices to be determined by market forces. Given that agricultural output is influenced by prices among other factors, the depreciation of the naira and abolish of the commodity boards were expected to result in an overall increase in production of exports.


1.2 Statement of the Problem

Change in income earning of exports crop producers come as a result of either increase or decrease in international world price of exports or devaluation of the currency and the subsequent increase in product prices. Such price/exchange rate changes, however, may lead to a major decline in future output if they are unpredicted and erratic. Fluctuation -whether positive or negative is not desirable as it increase risk and uncertainty in international transactions costs. An IMF (1984) study cites arguments that exchange rate variability would also tend to induce macroeconomic phenomena that are undesired, for example inflation and protectionism. Despite this assertion and that of other studies more recent research explains why a positive effect could also be possible (de Grauwe, 1988); Caballero and Corbo, 1989).

If firms hedge against exchange rate risk, one could not expect to find a strong negative effect on trade .Hedging against risk can be done via future or forward market Where forward markets exist, the nature of the uncertainty faced by traders is transformed .Forward market represents, in effect, a guaranteed forecast of the exchange rate that will prevail at the end of the contract period, which a trader can take advantage of by payment of a small margin around the forward rates .Since currency uncertainty can be removed from short run trading transaction by payment of this margin ,the cost of such uncertainty cannot be higher than the cost of purchasing insurance against it.


1.3 Objective of the Study

The general objective of this study is to determine the impact of exchange rate on export of agricultural product in Nigeria.

The specific objectives are as thus:

  1. To examine the contribution of exchange rate on export of agricultural product in Nigeria.
  2. To determine the extent which export of agricultural product contributed to Nigeria economy
  3. To examine the challenges of agricultural development in Nigeria

1.4 Research Hypotheses

The following have been put forward for testing

  1. H0: There is no positive significant contribution of export of Agricultural output to economic development in Nigeria.
    H1: There is positive significant contribution of export of Agricultural output to economic development in Nigeria.
  2. H0: There are no challenges of agricultural development in Nigeria
    H1: There are challenges of agricultural development in Nigeria

1.5 Significance of the Study

The inefficient and ineffectiveness on the export of agricultural products in the provision of competitive goods in the foreign market has been ascribed to a combination of factors including low level of industrialization, inadequate financing of export industries, inefficient performance of export promotion agencies, inadequacy of incentive schemes, inappropriate export promotion strategies, inadequate infrastructural facilities ,high cost of production. Series of efforts have been made to arrest this problems but with little or no effect in the sector.

  1. Enhancing export supply capacity
  2. Formulate and implement effective strategies to strengthen productivity and growth in output
  3. Ensuring that agricultural export business remains profitable.
  4. Ensuring that exporter attains international competitiveness.

1.6 Scope and Limitation of the Study

The bases of our research on the impact of exchange rate fluctuation on the export of agricultural products in Nigeria will be limited to the agricultural export because of the non-feasibility of caring out a research on the agricultural sector as a whole. The researcher encounters some constrain which limited the scope of the study;

a) Availability of Research Material:

The research material available to the researcher is insufficient, thereby limiting the study

b) Time:

The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.


1.7 Definition of Terms

Balance of Trade:

This is the difference between the total value of the country exports and imports of visible term. It is an important part of balance of payment which takes account of visible items of capital transfer.

Currency Devaluation:

This is the reduction in the value of currency in terms of the supporting monetary method or in terms of another country currency. i.e. a decrease in the value of fixed exchange rate .This is done sometimes when other countries lose confidence in the value of the country currency.

Export / Import:

Export are the sales of goods and services of foreign countries . While goods are classified as visible exports services that include banking, insurance and tourism are invisible export .Export and import from foreign sector of any economy .Import refers to the goods and services purchased from a foreign in other to control her balance of payment.

Economic Growth and Development:

This is an expansion or increase of the national output if an economy .It may result from quantity increase and not quality .i.e. an increase in population may increase the output bit this does not necessitate improvement in welfare of the citizen e.g. pollution and index of poverty, when considering economic development we are looking at how stable the growth is and the standard of living measured by the per capital income.

Industrialization:

This is a policy adopted by the government to promote export and growth in an economy.


1.8 Organization of the Study

This research work is organized in five chapters, for easy understanding, as follows

  • Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study.
  • Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature.
  • Chapter three deals on the research design and methodology adopted in the study.
  • Chapter four concentrate on the data collection and analysis and presentation of finding.
  • Chapter five gives summary, conclusion, and recommendations made of the study

Chapter Five


Summary, Conclusion and Recommendation

5.1 Introduction

It is important to ascertain that the objective of this study was to ascertain the impact of exchange rate on export of Agricultural product in Nigeria. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenge of exchange rate on export of Agricultural product in Nigeria


5.2 Summary

This study was on the impact of exchange rate on export of Agricultural product in Nigeria. Three objectives were raised which included: To examine the contribution of exchange rate on export of agricultural product in Nigeria, to determine the extent which export of agricultural product contributed to Nigeria economy, to examine the challenges of agricultural development in Nigeria. In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staff of ministry of Agriculture, Abuja. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made directors, administrative staff, senior staff and junior staff were used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies


5.2 Conclusion

Based on the findings of this research work, the result shows that agricultural export in Nigeria does depend on the exchange rate and price of crude oil in the long run However, findings support the conclusions of Adubi and Okunmadewa (2000); who found out that exchange rate fluctuations and also deviation of real exchange rate from its long run equilibrium path are inhibiting factors in the agricultural exports.


5.4 Recommendation

In as much as it has been concluded that Nigeria exports does depend on the exchange rate, in this regard, the following recommendations are hereby suggested: While exchange rate devaluation should be encouraged, more resources should be channeled into the agriculture sector to boost productivity. Home based industries should be established to provide cheap agricultural inputs such as chemicals, fertilizers, tractors and spare parts in order to boost the level of agricultural productivity and further promote agricultural exports. Foreign currencies policies should be allowed more latitude.


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