Day 1, Session 3 of the Nigeria Strategy Support Program's 2012 Research Conference

1. Alternative Development Strategies for Achieving
Rice Competitiveness and Growth in Nigeria
- An Economywide Multimarket Modeling Assessment
Xinshen Diao, IFPRI
NSSP National Conference 2012:
“Informing Nigeria’s Agricultural Transformation Agenda with Policy
Analysis and Research Evidence”
Abuja, Nigeria – November 13-14, 2012

2. 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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3. • 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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4. 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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5. 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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6. Parameters used in the policy scenarios
Exogenous
EMM parameters shocked Targeted key endogenous
scenarios in the model variables in the model In the relevant scenarios
base level Low Medium High
Import
restriction Tariff rates 50% 100% 200% 400%
Technology Yield growth rate, non- Level of yield for non-
change competitive varieties competitive local rice (mt/ha) 1.91 t/ha 1.96 t/ha 2.01 t/ha 2.06 t/ha
Yield growth rate, Level of yield for competitive
competitive varieties 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 Area of non-competitive local
total rice area rice in total rice area (%) 97.1% 94.9% 91.8% 85.1%
Area growth rate,
competitive varieties in Area of competitive local rice
total rice area in total rice area (%) 2.9% 5.1% 8.2% 14.9%
Market
improvement Market margins 70% 60% 50% 40%
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7. Policies Targeting Rice Competitiveness
1000
900
Wholesale and retail margins 800
in Nigeria are 27% and 18%
US$/mt
700
of total value
600
chain, respectively, and
wholesale margins are 100% 500
higher than in Thailand – 400
Policy Scenario 2:
300
Competitiveness in the
market 200
100
Production cost in Nigeria is 0
Retail margins
Freight & handling
Production Costs
Production Costs
Potential Quality Premium
Farmer Margin
Other cost of FOB
Farmer Margin
Import Tariff (32%)
Processing margins
Processing margins
Wholesale trade margins
Wholesale trade margins
39% of total value chain and
is 1.7 times higher than in
Thailand – Policy Scenario
1: Competitiveness at the
farm-gate
Local rice Imports of Thai rice
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8. Improving Rice Competiveness Is a Win-Win
Strategy: Production
30
% change in rice output from the base
25
Low Medium High
20
15
10
5
0
Import restrictions Technology change Market improvement ombined tech&market
C
Source: Nigeria EMM model simulation result
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9. Yield Can Be the Driving Force for Production Growth
% change in rice yield from the base
20
15
L M H
10
5
0
Import restrictions Technology change Market improvement Combined
tech&market
-5
-10
• 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
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10. Improving Rice Competiveness Is a Win-Win Strategy:
Consumption
% change in rice consumer demand from the base
4
2
0
-2 Import restrictions Technology change Market Combined
improvement tech&market
-4
-6
L M H
-8
-10
-12
-14
-16
-18
Source: Nigeria EMM model simulation result
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11. Import-Dependency Can Be Reduced through Rice
Competitiveness
Rice import-consumption ratio
50
45 L
40 M
35 H
30
25
20
15
10
5
0
Base-run Import Technology Market Combined
restrictions change improvement tech&market
Source: Nigeria EMM model simulation result
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12. Improving Rice Competiveness Is a Win-Win Strategy:
Household Incomes
% change in rural pc income from the 8 % change in urban pc income from the
8
base base
Low Low
6 6
Medium Medium
High High
4 4
2 2
0 0
Import Technology Market Combined Import Technology Market Combined
restrictions change improvement tech&market restrictions change improvement tech&market
-2 -2
-4 -4
Source: Nigeria EMM model simulation result
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13. Policy Scenario 4: Further Raising Import Tariffs Unlikely to
Help Nigeria Become Rice Self-Sufficient
4.5
4.3
output or demand (mn ton)
Rice output
4.1 Rice demand
3.9
3.7
3.5
3.3
3.1
2.9
2.7
2.5
50 63 75 78 88 98 100 113 153 169 200 268 400
Tariff rate (%)
• 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
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14. Supply Response to the High Rice Tariff Policy Is Area
Expansion without Yield Growth
2.0
1.9
area (mn ha) and yield (mt/ha)
1.8
1.7 Rice area
Rice yield
1.6
1.5
1.4
1.3
50 63 75 78 88 98 100 113 153 169 200 268 400
Tariff rate (%)
Source: Nigeria EMM model simulation result
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15. High Tariffs Create Food Price Inflation While Agricultural
Real Income Falls
Tariff rate (%)
0.0 18.0
63 75 78 88 98 100 113 153 169 200 268 400
change in agricultural real income
16.0
-0.2
14.0
Change in food CPI (%)
-0.4 12.0
Change in agricultural real income
10.0
(%)
-0.6 Change in Food CPI
8.0
-0.8 6.0
4.0
-1.0
2.0
-1.2 0.0
• 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
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16. 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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17. 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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18. 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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19. Achieving Rice Competitiveness and Growth in
Nigeria – Policy Implications
Kwabena Gyimah-Brempong
NSSP National Conference 2012:
“Informing Nigeria’s Agricultural Transformation Agenda with Policy Analysis
and Research Evidence”
Abuja, Nigeria – November 13-14, 2012

20. 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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21. 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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