ABSTRACT
Prices contain information crucial
to maximizing the returns to production and marketing investments. At planting
time, a farmer's planting decision depends on expected profits, which
invariably hinge on the anticipated prices of the crop or mix of crops that
would prevail in the market at the time of sale and on the farmer's
interpretation of those prices. A trader, in search of profitable arbitrage,
reads and translates price signals in deciding on what crops to buy, where to
buy, and when to sell. Apart from guiding production and marketing decisions,
prices govern the optimal allocation of resources among competing uses. The
accuracy, reliability, and promptness of market information are therefore
critical in attaining pricing efficiency. Broadly, the study attempted to
analyze the price fluctuation and market integration of selected cereal grains
in North-eastern Nigeria. The specific objectives of the study were to: (i)
estimate the extent of the various components of price; (ii) derive the
probability distribution of cereal grain price in the long-run; (iii) determine
the existence and level of inter-market price dependency; (iv) examine the
speed of price adjustment to long-run equilibrium and (v) examine the Granger
Causality among rural and urban cereal grain markets. The study was conducted
in North-eastern Nigeria. Purposive sampling technique was used to select two
states, of Adamawa and Taraba, from the six states that made up the North-east
geopolitical zone. Only secondary data were used in the study. Secondary data
on monthly bases for the prices of 100kg of three cereal grains, maize, rice
and sorghum in both rural and urban markets in the study area were obtained
from Adamawa and Taraba States Agricultural Development Program offices for a
period of 10 years (2001-2010). Data were analyzed using descriptive statistics
such as price decomposition technique, and inferential statistics such as
Markov Chain, Vector Autoregressive and Error Correction Models. The results
revealed that, the trend component showed an upward movement for all the three
commodities. The seasonal variation had indexes ranged from 198.15 to 52.61,
142.83 to 61.88, and 141.44 to 66.25 for maize, rice and sorghum, respectively.
The random and cyclical variations had negligible and insignificant indices
with the former having 0.01 all through and the later ranging from 0.93 to 1.26.
Probability distribution matrices of the three cereal grains were 0.18, 0.48
and 0.34 for maize, 0.27, 0.68 and 0.05 for rice and 0.48, 0.25 and 0.27 for
sorghum. The Augmented Dickey-Fuller unit roots test indicated I(0), I(1)
and I (1) for maize, rice and sorghum, respectively. Null hypothesis of
β = 1 was rejected against β = 0. Trace statistics
for rural and urban markets were not significant (
Rural and urban prices of maize responded to shocks within and between
each market. The speed with which the system adjusted to shocks and restored
equilibrium between the short and the long-run were -0.170725 and -0.29517 for
urban and 0.592237 and 0.38034 for rural prices of rice and sorghum,
respectively. Granger Causality showed that a bi-directional flow of price
signals existed between rural and urban prices of maize, while rural prices of
rice and sorghum did not Granger-Cause urban prices of rice and sorghum. Also,
urban prices of both rice and sorghum did not Granger-cause rural prices of
both rice and sorghum. Findings of the study showed an imperfect market
integration for North-eastern Nigeria cereal grain markets, this indicate that
there may be substantial benefits in developing better infrastructure
facilities to effectively link production centers to market centers and in
improving market knowledge by providing more relevant, accurate, and timely
public market information.
Rural and urban prices of maize responded to shocks within and between
each market. The speed with which the system adjusted to shocks and restored
equilibrium between the short and the long-run were -0.170725 and -0.29517 for
urban and 0.592237 and 0.38034 for rural prices of rice and sorghum,
respectively. Granger Causality showed that a bi-directional flow of price
signals existed between rural and urban prices of maize, while rural prices of
rice and sorghum did not Granger-Cause urban prices of rice and sorghum. Also,
urban prices of both rice and sorghum did not Granger-cause rural prices of
both rice and sorghum. Findings of the study showed an imperfect market
integration for North-eastern Nigeria cereal grain markets, this indicate that
there may be substantial benefits in developing better infrastructure
facilities to effectively link production centers to market centers and in
improving market knowledge by providing more relevant, accurate, and timely
public market information.
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
The
grain sub-sector plays an important role in the economic development of
Nigeria. The output of the sub-sector (Ismaila, Gana, Twanya & Dogara 2010;
Okunneye, 2003) constitutes a large proportion of staple food stuffs in
Nigeria. Between 1985 and 1995, cereal grain accounted for almost 50 % of the
total food supply in Nigeria when expressed in grain equivalent (Akpan &
Udoh, 2009; Ukoha). On the other hand, Paulino and Sarma (1988) reported that
about 70% of the total food crop area harvested in Nigeria was devoted to
cereals and the remaining 30% to non-cereals.
The
most important cereal grain crops grown and marketed in Nigeria are maize,
rice, sorghum, millet and wheat (Akpan & Udoh, 2009; Global Information and
Early Warning System on Food and Agriculture (GIEWS), 2008; Ismaila et al.,
2010; Oguntunde, 1989; Wudiri, 1992). Of these, rice, maize, millet and sorghum
are the major sources of energy staple food available and affordable in
Nigeria, and are the commodities that are of considerable importance for food
security, expenditure and income of households in Northern Nigeria (Ismaila et
al., 2010; Maziya-Dixon et al., 2004).
In
most parts of Asia and Africa, cereal products comprise 80% or more of the
average diet, in central and western Europe, as much as 50% and in the United
States, between 20 – 25% (Food and Agriculture Organization, 1996). Also, the
increased demand for cereals, as a result of rapid urbanization, means that
food crops must increasingly be produced to meet the needs of the rural and
urban population (Balarabe, 2003). According to the Central Bank of Nigeria
(CBN) (2000), Okunneye (2003) and Ukoha (2005), most Nigerians depended on
cereal grains for their
Spatial
market integration of agricultural products has been widely used to indicate
overall market performance (Faminow & Benson, 1990). In spatially
integrated markets, competition among arbitragers will ensure that, a unique
equilibrium is achieved where local prices in regional markets differ by no
more than transportation and transaction costs. Information of spatial market
integration, thus, provides indication of competitiveness, the effectiveness of
arbitrage, and the efficiency of pricing (Sexton, Kling & Carman, 1991).
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