Food Price Inflation and Consumers’ Welfare in Ondo State, Nigeria

Abstract

This study analyzed the effects of food price inflation on households in Ondo State. The study made use of 82 rural households in Ondo state using a Random Sampling Technique. Primary data was employed to generate information for the food groups. Demand for food groups in this study was estimated using Quadratic Almost Ideal Demand System (QUAIDS) technique while the welfare effect was estimated with both the QUAIDS and the Compensated Variation model. The result of the QUAIDS model showed that apart from Plantain, all other estimated expenditure elasticities were all positive and statistically significant at the percent level, indicating that all the food items are normal goods. It was further observed that Rice (0.07), Beans (0.10), Garri(0.03) and Plantain(-0.21) are necessities since their coefficients were less than 1. In addition, the Compensated Variation model indicated that households in Ondo State needed to be compensated around 24.9 percent of their total household expenditure on food in order to accommodate the adverse impact of food price inflation. The conclusion, however, is that all households in Ondo State suffered welfare losses from hike in the food prices between January and October 2016. Consequently, the study recommended that government should try, as much as possible, to subsidize the price of foodstuffs so that it can be accessible to households in Ondo State in order to improve their welfare.

Keywords: Inflation, Households, Welfare, Compensated, Food