day 1, session 3: achieving rice competitiveness and growth in nigeria ii

Alternative Development Strategies for Achieving Rice Competitiveness and Growth in Nigeria

- An Economywide Multimarket Modeling Assessment

NSSP National Conference 2012:

“Informing Nigeria’s Agricultural Transformation Agenda with Policy Analysis and Research Evidence”

Abuja, Nigeria – November 13-14, 2012

Xinshen Diao, IFPRI

INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

What is an Economy-wide Multimarket Model?

• An economywide multimarket model (EMM) can describe changes in supply, demand, trade, and price for agricultural and nonagricultural products quantitatively• In the Nigerian EMM there are 26 crops, 5 livestock, 2 fishery products, 8

animal products, and 2 aggregate nonagricultural sectors• Changes in supply, demand and price are the results of changes in

import tariff rates, productivity (e.g. yields for crops), and domestic market margins (a gap between producer and consumer prices)

• Price elasticities in the supply functions (at the state level) determine the magnitude of supply response

• Income and price elasticities in the demand functions affect demand response


• List of agricultural commodities in detail: Maize, Rice, Millet, Sorghum, Wheat, Other cereals,

Cassava, Yam, Sweet Potato, Potato, Cocoyam, Groundnuts, Soybeans, Oil palm, Sesame seed, Other oil crops, Pulses, Cotton, Sugar, Cocoa, Coffee, Vegetables, Plantain, Fruits, Spices, Nuts

Cattle, Chickens, Sheep and goat, Pigs, Other livestock

Seawater fish, Fresh water fish Beef, Poultry meat, Eggs, Sheep/goat meat, Pork,

Other meat, Milk, Skin


Assessing Competitive Implications of Alternative Rice Policy Scenarios

S1-Technology Change: Increasing rice productivity and switching some areas from growing low quality to high quality varieties

S2-Market Improvement: Lowering processing and marketing margins

S3: Combination of S1 & S2

S4-Import Restrictions: Increasing import tariff rates


How to Model Policy Scenarios in the Nigerian EMM?

• Defining two types of rice: • Type 1: highly competitive at the current tariff level (accounting for 3% of total

rice area)• Type 2: low competitive

• Difference in import substitution in households’ demand• Type 1: perfectly substitutable with imported rice (more preferred by the urban

households)• Type 2: imperfect substitutable with imported rice and it occurs only when

domestic price for imported rice rises (more preferred by the rural households)• Supply of and demand for each type of rice respond to prices for both

types of rice• Reporting changes in rice production, demand, imports, total agricultural

production, and food price index from their current levels (the base) under alternative policy scenarios


Parameters used in the policy scenarios

EMM scenarios

Exogenous parameters shocked in the model

Targeted key endogenous variables in the model In the relevant scenarios

base level Low Medium High

Import restriction Tariff rates 50% 100% 200% 400%

Technology change

Yield growth rate, non-competitive varieties

Level of yield for non-competitive local rice (mt/ha) 1.91 t/ha 1.96 t/ha 2.01 t/ha 2.06 t/ha

Yield growth rate, competitive varieties

Level of yield for competitive local rice (mt/ha) 1.91 t/ha 2.16 t/ha 2.46 t/ha 2.82 t/ha

Area growth rate, non-competitive varieties in total rice area

Area of non-competitive local rice in total rice area (%) 97.1% 94.9% 91.8% 85.1%

Area growth rate, competitive varieties in total rice area

Area of competitive local rice in total rice area (%) 2.9% 5.1% 8.2% 14.9%

Market improvement Market margins 70% 60% 50% 40%

Policies Targeting Rice Competitiveness

Pro

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on

Co

sts

Fa

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arg

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Pro

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Wh

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Re

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Po

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Imp

ort

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Fre

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Wh

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Pro

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Pro

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Local rice Imports of Thai rice

0

100

200

300

400

500

600

700

800

900

1000

US

$/m

t

Wholesale and retail margins in Nigeria are 27% and 18% of total value chain, respectively, and wholesale margins are 100% higher than in Thailand – Policy Scenario 2: Competitiveness in the market

Production cost in Nigeria is 39% of total value chain and is 1.7 times higher than in Thailand – Policy Scenario 1: Competitiveness at the farm-gate


Improving Rice Competiveness Is a Win-Win Strategy: Production

0

5

10

15

20

25

30% change in rice output from the base

Low Medium High

Source: Nigeria EMM model simulation result


Yield Can Be the Driving Force for Production Growth

-10

-5

0

5

10

15

20% change in rice yield from the base

L M H

• Even modest improvement in rice productivity and market efficiency, rice production can increase significantly, particularly when yield increases for more competitive varieties



Improving Rice Competiveness Is a Win-Win Strategy: Consumption

Impo

rt re

stric

tions

Techn

olog

y ch

ange

Mar

ket i

mpr

ovem

ent

Combi

ned

tech

&mar

ket

-18

-16

-14

-12

-10

-8

-6

-4

-2

0

2

4 % change in rice consumer demand from the base

L M H



Import-Dependency Can Be Reduced through Rice Competitiveness

0

5

10

15

20

25

30

35

40

45

50 Rice import-consumption ratio

L

M

H



Improving Rice Competiveness Is a Win-Win Strategy: Household Incomes

-4

-2

0

2

4

6

8 % change in rural pc income from the base

Low

Medium

High

Impo

rt re

strict

ions

Techn

olog

y cha

nge

Mar

ket im

prov

emen

t

Combi

ned

tech

&mar

ket

-4

-2

0

2

4

6

8 % change in urban pc income from the base

Low

Medium

High



Policy Scenario 4: Further Raising Import Tariffs Unlikely to Help Nigeria Become Rice Self-Sufficient

50 63 75 78 88 98 100 113 153 169 200 268 4002.5

2.7

2.9

3.1

3.3

3.5

3.7

3.9

4.1

4.3

4.5

Rice output

Rice demand

Tariff rate (%)

ou

tpu

t o

r d

em

an

d (

mn

to

n)

• With tariff rate being as high as 400%, rice production can only reach 3.1 million mt (such modest supply response is consistent with the farmer level analysis)

• Rice demand falls as an outcome of high domestic prices• With reduced demand imports still account for 20% of rice domestic consumption Source: Nigeria economywide multimarket (EMM) model simulation result


Supply Response to the High Rice Tariff Policy Is Area Expansion without Yield Growth

50 63 75 78 88 98 100 113 153 169 200 268 4001.3

1.4

1.5

1.6

1.7

1.8

1.9

2.0

Rice area

Rice yield

Tariff rate (%)

are

a (

mn

ha

) a

nd

yie

ld (

mt/

ha

)



High Tariffs Create Food Price Inflation While Agricultural Real Income Falls

• Because of negative effect on other agricultural and nonagricultural production, real income falls for both rural and urban households


63 75 78 88 98 100 113 153 169 200 268 400

-1.2

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

Change in agricultural real income

Change in Food CPI

Tariff rate (%)

ch

an

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in a

gri

cu

ltu

ral r

ea

l in

co

me

(%

)C

ha

ng

e in

foo

d C

PI (%

)


Key Messages (1)

• Historical data has shown that an import restriction policy is not effective in reducing rice imports and increasing rice production, and the modeling analysis further confirms it• In the model it shows that doubling rice import tariff rate (to

100%) only modestly raises domestic rice production, and at a tariff rate of 400%, rice production only increases by less than 20%

• Tariff-induced supply response is through rice area expansion without yield growth

• Other crop production can be negatively affected

• Consumers are hurt by high import tariffs• With reduced consumption caused by high tariffs,

imports still account for 20% of total consumption


Key Messages (2)

• Technology change is a win-win strategy• A modest increase in rice yield, from 1.9 mt/ha to 2.2

mt/ha, improves the competitiveness of local rice when such yield improvement is led by more competitive varieties

• Rice production can reach a similar level achieved by the protection policy with a high tariff rate of 400%

• Rice consumption increases while import-dependency rate falls to 33% (from current 45%)

• Other crop production will not be hurt


Key Messages (3)

• When technology change is combined with market improvement, local rice competitiveness increases significantly• Both production and consumption increase while

import dependency rate falls below 30%• Income gains go to both rural and urban consumers• Rice growth is not accompanied by domestic food

price inflation as in the case of the high protection policy

Achieving Rice Competitiveness and Growth in Nigeria – Policy Implications

NSSP National Conference 2012:

“Informing Nigeria’s Agricultural Transformation Agenda with Policy Analysis and Research Evidence”

Abuja, Nigeria – November 13-14, 2012

Kwabena Gyimah-Brempong


Conclusions and Policy Implications (1)

• Nigeria has a huge potential to increase the competitiveness of local rice along the value chain, through:

• Increasing yield growth• Emphasize the right seeds• Focus on competitive rice farmers• Encourage cost effective and privately operated irrigation technology

Improve fertilizer availability to rice farmers through private sector involvement

• Promote the role of private sector to lead agricultural mechanization (e.g. to promote intensification through double cropping).

• Import restrictions alone may not be effective at stimulating a large supply response


Conclusions and Policy Implications(2)

• Encourage private sector to lead competitive efforts in domestic rice markets.

• Profitability in local rice production cannot be achieved through import restrictions alone• Consistency in policy is a necessary pre-condition for profitability

for the private sector• Proper policies are needed to encourage the private sector to

develop rice varieties that can compete against imported varieties and make them available to farmers

• Avoid winner-picking in the milling sector; and encourage small and medium sized millers

• Investing in basic infrastructure is the key to lowering marketing cost

day 1, session 3: achieving rice competitiveness and growth in nigeria ii

Documents

rice production

rice yield

type of rice

imported rice

rice productivity

rice output

rice competitiveness1000

rice competiveness