Effect of Petroleum Pricing on Agricultural Production in Nigeria: An Error Correction Modeling Approach

Nigeria is a dominant economic force in sub-Saharan Africa with a strong economy as well as booming oil and agricultural sectors. However, over-dependence on the production and export of oil as well as food imports has rendered the economy vulnerable to global price fluctuations. The increasing spate of fluctuations in the world price of oil affects not only the economic sector but also agricultural production. Despite the huge earnings from oil, Nigeria remains one of the most food insecure countries in the world. This study therefore estimates the effect of petrol or premium motor spirit (PMS) pricing on agricultural production using available time series data for 41 years (1970-2010) obtained from the Central Bank of Nigeria’s Annual Statistical Reports and National Bureau of Statistic’s Bulletins. The study reveals that the trend in production level of agricultural products persistently increased between 1984 and 2000, followed by a much lower growth rate between 2001 and 2002 sub-period and the increasing trend picked up again in 2003. There was an increasing trend pattern of petrol (PMS) prices except for 2009 when the price dropped from N70 to N65. Consumption of PMS was not relatively constant either. The Ordinary Least Square (OLS) results show that the quantity of agricultural output increased with the price of PMS. However, consumption of PMS had an inverse relationship with agricultural output. Effect of Petroleum Pricing on Agricultural Production in Nigeria: An Error Correction Modeling Approach