day 1, session 3: achieving rice competitiveness and growth in nigeria ii
DESCRIPTION
Day 1, Session 3 of the Nigeria Strategy Support Program's 2012 Research ConferenceTRANSCRIPT
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
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INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
• 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
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INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
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
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INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
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
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INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Parameters used in the policy scenarios
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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
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Pro
du
cti
on
Co
sts
Fa
rme
r M
arg
in
Pro
ce
ss
ing
ma
rgin
s
Wh
ole
sa
le t
rad
e m
arg
ins
Re
tail
ma
rgin
s
Po
ten
tia
l Qu
alit
y P
rem
ium
Imp
ort
Ta
riff
(3
2%
)
Fre
igh
t &
ha
nd
ling
Oth
er
co
st
of
FO
B
Wh
ole
sa
le t
rad
e m
arg
ins
Pro
ce
ss
ing
ma
rgin
s
Fa
rme
r M
arg
in
Pro
du
cti
on
Co
sts
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
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Improving Rice Competiveness Is a Win-Win Strategy: Production
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0
5
10
15
20
25
30% change in rice output from the base
Low Medium High
Source: Nigeria EMM model simulation result
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Yield Can Be the Driving Force for Production Growth
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-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
Source: Nigeria EMM model simulation result
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Improving Rice Competiveness Is a Win-Win Strategy: Consumption
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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
Source: Nigeria EMM model simulation result
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Import-Dependency Can Be Reduced through Rice Competitiveness
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0
5
10
15
20
25
30
35
40
45
50 Rice import-consumption ratio
L
M
H
Source: Nigeria EMM model simulation result
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Improving Rice Competiveness Is a Win-Win Strategy: Household Incomes
Page 12
-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
Source: Nigeria EMM model simulation result
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Policy Scenario 4: Further Raising Import Tariffs Unlikely to Help Nigeria Become Rice Self-Sufficient
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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
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Supply Response to the High Rice Tariff Policy Is Area Expansion without Yield Growth
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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
)
Source: Nigeria EMM model simulation result
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
High Tariffs Create Food Price Inflation While Agricultural Real Income Falls
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• Because of negative effect on other agricultural and nonagricultural production, real income falls for both rural and urban households
Source: Nigeria EMM model simulation result
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
ge
in a
gri
cu
ltu
ral r
ea
l in
co
me
(%
)C
ha
ng
e in
foo
d C
PI (%
)
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
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
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INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
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
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INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
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
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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
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
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
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INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
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
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