Index Number Analysis On The Price Of Petroleum On The Price Of Food Items

Project and Seminar Material for Economics

Index Number Analysis On The Price Of Petroleum On The Price Of Food Items

Chapter One


1.1. Background of the study

The effect of prices of petroleum products on food items and the economy of Nigeria cannot be over emphasized. Petroleum products range from aviation fuel to kerosene just to mention a few, this is solely due to the lack of diversification of the economy. 85% of Nigeria gross domestic product (GDP) is being accounted for by the petroleum sector (Mahmud 2009). Before the discovery of crude oil in the early 70’s, agriculture was the main driver of the economy which has helped in the country’s development in these periods, there was hardly any incident to hike of products and services. The price stability of food items is of utmost importance to every nation that wants to witness growth; this is because it is only a healthy workforce that can give out their best in terms of work and productivity. Overtime there may have been some arguments about the relationship between petroleum prices and price index of food items. Some school of thought opined that prices of petroleum prices has nothing to do with prices of food items, questioning the agricultural stakeholders and traders for massive exploitation during price instability of petroleum products while the other school of thoughts are of the opinion that petroleum products does affect the prices of food items. Petroleum is believed to have an enormous bad wagon effect on the economy and even agricultural products this normally occurs in the economies of the West Africa sub-region which isn’t often diversified. For any oil producing nation that doesn’t want to know poverty of its masses then they must have to diversify their economy so as to prevent crises in one sector of the economy spilling over to the other sectors.

Food items are an essential commodity for a healthy nation, the supply of food to any nation must be done without anyform of compromise as anything less than an adequate planning will lead to shortage in food supply which could affect the economy of the nation. Every meaningful government should always ensure that adequate food supply remains untouched as such shouldn’t be affected by either petroleum

1.2. Statement of the general problem

The fluctuation of agricultural food items in Nigeria has been a concern for some time now which is not good for a growing economy like ours. A nation that plays with its agricultural sector is a nation that would encounter shortage of food supply which may not pan out for a populous country like Nigeria. The problem of hike of food items each time there is a little change in the prices of petroleum items has led us to this study.

1.3. Significance of the study

This study would be useful to policy makers, researchers on the economy of the nation and above all the Nigerian government in tackling food scarcity in Nigeria thereby ensuring food security in Nigeria.

1.4. Aims and objectives of the study

  1. This study seeks to study the price fluctuation of both petroleum products and food items with a view to knowing if petroleum price changes affects or influences a corresponding change in prices of food items in Nigeria.
  2. This study also seeks to examine the nature of relationship that exists between petroleum prices and prices of food items in Nigeria.
  3. This study is also intended to predicting the effect of petroleum and food item prices on the economy of the nation.
  4. To proffer solutions of ensuring food security in Nigeria.

1.5. Research Questions

  1. Is there a relationship between the prices of petroleum prices and the prices of food items?
  2. What nature of relationship exists between petroleum and food items prices?
  3. What are the ways one can ensure food security in Nigeria.
  4. Do the prices of petroleum prices and prices of food items affect the economy?

1.6. Research hypothesis

  • H0: there is no significant relationship between the prices of petroleum products and the prices of food items.
  • H1: there is a significant relationship between the prices of petroleum products and the prices of food items.

1.7. Scope of the study

This study is on the analysis on the prices of petroleum on the price of the food items from 1999-2013.

1.8. Limitations of the study

Financial constraint

Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection.

Time constraint

The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

1.9. Definition of terms


Crude oil, commonly known as petroleum, is a liquid found within the Earth comprised of hydrocarbons, organic compounds and small amounts of metal. While hydrocarbons are usually the primary component of crude oil, their composition can vary from 50%-97% depending on the type of crude oil and how it is extracted.


Economy encompasses all activity related to production, consumption and trade of goods and services in an area. The economy applies to everyone from individuals to entities such as corporations and governments. The economy of a particular region or country is governed by its culture, laws, history, and geography, among other factors, and it evolves due to necessity.

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