Investigating the Effect of Fertilizer Subsidy on Agricultural Production and its Implication on Food Security in Nigeria (1981-2012)

Abstract

The study examines the impact of government funded fertilizer subsidies on agricultural production in Nigeria. The data for this study are primarily time series data at macro level spanning from 1981 to 2012. Data on agricultural gross domestic product, exchange rate, crude oil price, capital, agricultural land, foreign direct investment into the agricultural sector and data on fertilizer subsidy costs were sourced from the Food and Agricultural Organization (FAO) online Statistical data base of the United Nations, Penn world data of the University of Pennsylvania and Central Bank of Nigeria (CBN) statistical bulletin and the National Bureau of Statistics, Federal Ministry of Agriculture, International Fertilizer Development Centre (IFDC), Federal Fertilizer Department (FFD), Project Coordinating Unit (PCU) and Farm management survey and advisory services. The Johansen approach to cointegration and error correction modeling was used in analyzing the data. The results show that capital, foreign direct investment into the Nigeria agricultural sector and fertilizer subsidy cost all have positive and significant effects on agricultural production in Nigeria. The coefficient for the error correction mechanism (ECM) is -1.234 which indicates that the deviation of agricultural production, proxy as gross domestic product (LAGDP) from the long-run equilibrium level is corrected by about 123% in the current period. This shows that the speed of adjustment of the Nigerian agricultural production to the state of equilibrium is very high (all things being equal).

Keywords: Fertilizer, Subsidy, Cointegration, Nigeria, Agriculture.