Impact Of Inflation On Agricultural Output In Nigeria
Agriculture was known to be one of the major contributors to national development, but suffering from neglect has resulted to heart-aching inflation in Nigeria. Inflation in Nigeria of the recent has been attributed to high food prices. Increasing population growth has also rendered the growth in agricultural sector insignificant resulting to a little rise in output level. This study therefore analyzed the Nigerian agricultural production and inflation rate and examines their linkage and dimension. Time series data from 1980 to 2017 were employed for this study. The analytical techniques employed are descriptive statistics.
The result revealed that there were variations in the trend of both inflation rate and agricultural output. The change in agricultural output caused inflation during the 1980-2017 period and not vice-versa. The result showed that there is direct relationship between agricultural output change and inflation rate. In addition, increase in previous year’s inventory change of agricultural production increases inflation rate. Consequently, policies that can absorb the excess in agricultural output inventory thus resulting into food prices and inflation stability are recommended.
Table of Content
- TITLE PAGE
- Table of Content
- List of Tables
- 1.1 Background of the study
- 1.2 Statement of the problem
- 1.3 Objective of the study
- 1.4 Research Questions
- 1.5 Research hypotheses
- 1.6 Significance of the study
- 1.7 Scope of the study
- 1.8 Limitation of the study
- 1.9 Definition of terms
- 1.10 Organization of the study
Review of Literature
- 2.0 Introduction
- 2.1 Conceptual Framework
- 2.2 Theoretical Framework
- 2.3 Review of Empirical Studies
- 3.0 Introduction
- 3.1 Theoretical Literature
- 3.2 Model Specification
- 3.2.1Estimation Procedure
- 3.3 Method Of Evaluation
- 3.3.1 Statistical Criteria [First Order Test]
- 3.3.2 Econometric Test (Second Order Test)
- 3.4 Data Transformation and Collection Techniques
Data Presentation and Analysis
- 4.1 Data Presentation
- 4.2 Descriptive Analysis
- 4.3 Test of Hypotheses
Summary, Conclusion and Recommendation
- 5.1 Summary
- 5.2 Conclusion
- 5.3 Recommendation
1.1 Background of the Study
In economics, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy. The measure of inflation is the inflation rate, the annualized percentage change in a general price index, usually the consumer price index, over time. The opposite of inflation is deflation. Inflation affects economies in various positive and negative ways. The negative effects of inflation include an increase in the opportunity cost of holding money, uncertainty over future inflation which may discourage investment and savings, and if inflation were rapid enough, shortages of goods as consumers begin hoarding out of concern that prices will increase in the future. Positive effects include reducing unemployment due to nominal wage rigidity allowing the central bank more leeway in carrying out monetary policy, encouraging loans and investment instead of money hoarding, and avoiding the inefficiencies associated with deflation. Economists generally believe that the high rates of inflation and hyperinflation are caused by an excessive growth .A more exact definition of inflation is a situation of a sustained increase in the general price level in an economy. Inflation means an increase in the cost of living as the price of goods and services rise. Inflation leads to a decline in the value of money. “Inflation means that your money won’t buy as much today as you could yesterday.” The inflation rate is the annual percentage change in the price level. (1980-2017)
1.2 Statement of the Problem
The Effect of inflation slower increases in agricultural producers prices than for inputs. This resulted in declining profitability and purchasing power parity of agricultural products, increasing debts and risk, and the weakening of agriculture’s competitive position on international markets. Input price inflation creates cash flow problems for farmers and increases the necessity of a high level of operational management and conservative financial strategies. Individual farmers can possibly counteract the effect of input price inflation through increases in productivity and economizing on costs. Present competitive structures may however possibly result in accelerated input price inflation if increases in productivity and economizing on costs occur for agriculture in aggregate. Solutions will be dictated by general economic policy. More effective competition and the enlargement of effective demand through accelerated urbanization have, at least theoretically, potential possibilities. The problem confronting the study is to appraise the impact of inflation on agricultural product output in Nigeria (1980-2017)
1.3 Objective of the Study
The Main Objective of the study is to appraise the impact of inflation on agricultural product output in Nigeria (1980-2017);
The specific objectives include
- To determine the level of agricultural product output in Nigeria.
- To determine the level of inflation in Nigeria.
- To determine the impact of inflation on agricultural product output in Nigeria (1980-2017).
1.4 Research Questions
- What is the level of agricultural product output in Nigeria?
- What is the level of inflation in Nigeria?
- What is the impact of inflation on agricultural product output in Nigeria (1980-2017)?
1.5 Statement of the Hypothesis
The statement of the hypothesis for the study is stated in Null as follows
- Ho The level of agricultural output in Nigeria is low.
- Ho The impact of inflation on agricultural product output in Nigeria between 1980-2017 is high.
1.6 Significance of the Study
The study addresses the impact of inflation on agricultural product output in Nigeria between 1980-2017. It provides relevant data for the effective formulation and implementation of policies which will further stimulate the economy to economic growth and development.
1.8 Limitation of the Study
The study was confronted with logistics and geographical factors
1.9 Definition of Terms
Inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation reflects a reduction in the purchasing power per unit of money. It is a loss of real value in the medium of exchange and unit of account within the economy.
Monetary Policy Defined
Monetary policy is the process of controlling the supply, availability, cost of money or rate of interest. Monetary policy is usually used to attain a set of objectives oriented towards the growth and stability of the economy
Employment Rate Defined
This is the percentage of the labor force that is employed and also constitute one of the economic indicators that economists examine to help understand the state of the economy.
Unemployment Rate Defined
This constitutes the number of people actively looking for a job as a percentage of the labour force. The unemployment rate is defined as the percentage of unemployed workers in the total labor force. Workers are considered unemployed if they currently do not work, despite the fact that they are able and willing to do so.
1.10 Organizations of the Study
The chapter one consist of the introductory part of the study which includes the study background, the statement of the research problem, the study objective and scope of the study.
The second chapter is a critical review of other literatures relevant to the study and its objectives including the theoretical framework for the study. While the third chapter is methods of data collection, sampling and data analysis used in conducting the study. The fourth chapter centres around the research findings including an analysis of how it relates to previous findings. The fifth chapter consists of the summary of findings, conclusion and recommendations base on the study objectives.
Summary, Policy Recommendations and Conclusion
In this study, we set out to empirically re-evaluate the impact of inflation on agricultural output in Nigeria. The study was conducted to ascertain how monetary policy effect agricultural output.
Secondary data was used; the source of data included CBN Statistical Bulletin (2015). In order to achieve the objectives of the study, an econometric model was formulated using the Ordinary Least Square (OLS). In the model agriculture output was regressed on inflation rate, cash reserve ratio, and deposit money bank on agriculture.
The major findings of the study are summarized below:
- The result has established a negative but significant relationship between inflation rate and agricultural output. This has been found to be consistent with the theory.
- The result also revealed a positive and significant relationship between cash reserve ratio and agricultural output. This has been found to be consistent with the theory.
- The result also revealed a negative and significant relationship between deposit money bank to agriculture and agricultural output. This has been found to be inconsistent with the theory.
There are opportunities to be developed as a nation if the governments focus on maintaining an increase in agricultural production and absorbing the inventory changes.
Inflation can be kept at a minimum in the country if there is good harvest of agricultural output with possible inventory absorbing mechanism in place. Hence the call for the following policy measures: Government, private institution and farmers association need to encourage farmers in times of surplus by absorbing the excesses and possibly distribute it to the appropriate quarters to curtail inflation. Government, Non- governmental agencies and farmers association should seek ways to adjust for the change in agricultural output overtime (inventory changes). This can be done through investment in storage and processing facilities.
5.3 Policy Recommendations
Based on the following findings of this study, the following policy recommendations are suggested:
- The empirical results of the study have revealed a negative impact on agricultural output. We therefore, advocate for a moderate inflation rate which is needed for sustainable economic growth and development.
- The government should through the monetary authority effectively check the cash reserve ratio over time in order to dictate when there is need for adjustment.
- There is need for the government to seek a proper role for monetary policy in promoting strong and sustainable growth in a stable macroeconomic environment in Nigeria through monetary authority
- The government should always sustain policies that would enable agricultural output thrive through the efficacy and actualization of all macro economic variables.
- The government should through the CBN pursue an effective monetary policy in a globalised and rapidly integrated financial market environment and at all time evaluate and implement monetary policies.
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