The Impact of Production Cost, Exchange rate and Inflation rate on Food Prices in Nigeria: Consequences for Food Security.
Given the level food production and comparative advantage in the agricultural sector of Nigeria, one will expect that affordability of food should be a common commodity for all Nigerians but the reverse was the case as prices of food has continue to soar in recent time in Nigeria. This study, therefore, examines food price increase in Nigeria by considering the main determinants of food prices and the implications in Nigeria. The objectives of the study include identification of the major causes of food price increase, examination the short run analysis, enumerate the inflationary implications of the increase, and proffer possible ways to manage food prices in Nigeria. Using aggregated data obtained from National Bureau of Statistics and Central Bank of Nigeria, between 1986 and 2023, the long-run analysis was done using Johansen’s co-integration technique, and the short-run relationships between increase in food prices and its main determinants were examined using Vector Error Correction Model (VECM). Cost of Production and Exchange rate though significant but contributed to increase in food prices in Nigeria as a result of the cushion effect of local production and declining in the consumption of foreign products. Furthermore, exchange rate shows a positive impact on food prices since depreciation and devaluation of Naira made importation of food items dearer as well as importation of fuel and inputs leading to higher prices and reduction in growth while inflation rate negatively affected food prices. The study recommends the need for energy price policy, cost of production policy, and floating exchange rate policy to reduce higher food prices. The government and the private sector must harmonize all resources available to them to scale investment in the provision of solar energy and build more refineries to lower the cost of production and transportation of food items. The study concluded that once there is adequate supply of energy infrastructure, the cost of production will automatically have a downward move leading to food price stability
Index Terms: Determinants, Food prices, Exchange Rate, Cost of Production.
