Day 1, Session 3: Achieving Rice Competitiveness and Growth in Nigeria II

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

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  • Use Economy-wide Multi-market Model (EMM) for Nigeria. See annex for structure of Nigerian EMM
  • Day 1, Session 3: Achieving Rice Competitiveness and Growth in Nigeria II

    1. 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. 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 INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 2
    3. 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, SkinINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 3
    4. 4. Assessing Competitive Implications of Alternative Rice Policy ScenariosS1-Technology Change: Increasing riceproductivity and switching some areas fromgrowing low quality to high quality varietiesS2-Market Improvement: Lowering processingand marketing marginsS3: Combination of S1 & S2S4-Import Restrictions: Increasing import tariffratesINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 4
    5. 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 INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 5
    6. 6. Parameters used in the policy scenarios ExogenousEMM parameters shocked Targeted key endogenousscenarios in the model variables in the model In the relevant scenarios base level Low Medium HighImportrestriction 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%Marketimprovement Market margins 70% 60% 50% 40% INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 6
    7. 7. Policies Targeting Rice Competitiveness 1000 900Wholesale and retail margins 800in Nigeria are 27% and 18% US$/mt 700of total value 600chain, respectively, andwholesale margins are 100% 500higher than in Thailand – 400Policy Scenario 2: 300Competitiveness in themarket 200 100Production 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 margins39% of total value chain andis 1.7 times higher than inThailand – Policy Scenario1: Competitiveness at thefarm-gate Local rice Imports of Thai rice Page 7
    8. 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 resultINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 8
    9. 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 resultINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 9
    10. 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 resultINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 10
    11. 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 resultINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 11
    12. 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 the8 base base Low Low6 6 Medium Medium High High4 42 20 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 INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 12
    13. 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 resultINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 13
    14. 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 resultINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 14
    15. 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 400change 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 resultINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 15
    16. 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 consumptionINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 16
    17. 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 hurtINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 17
    18. 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 policyINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 18
    19. 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. 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 responseINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 20
    21. 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 costINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 21

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