Agriculture: Nigeria’s Economic Anchor Faces Stormy Waters Amid Macroeconomic Uncertain

In the policy narrative of Nigeria’s economy, agriculture has long been portrayed as its unshakable mainstay. Employing a significant portion of the population and contributing about 24% to the nation’s GDP, the sector is often viewed as a stabilizing force during economic downturns.

Olajide O. Oyadeyi of the Imperial College Business School, London analyses the impact of macroeconomic uncertainty on agriculture sector in Nigeria using quarterly data from Q1 1981 to Q4 2023 . His findings reveal that while agriculture remains a critical economic pillar, it is far from immune to macroeconomic shocks like inflation and exchange rate volatility.

The Historical Role of Agriculture in Nigeria

For decades, agriculture has served as Nigeria’s economic backbone, particularly during periods of oil market turbulence. Crops like cassava, yams, and maize not only provide food security but also contribute significantly to export revenues. As oil prices plummeted in past crises, agriculture was seen as a buffer, offering steady employment and production despite broader economic turmoil.

This perception of agriculture as an economic stabiliser is not unique to Nigeria. Globally, the World Bank has often highlighted agriculture’s role in stabilizing economies, particularly in low-income countries. Its ability to provide food and jobs during recessions makes it a natural candidate for shielding nations from external shocks.

Agriculture Sector in Nigeria: A Fragile Buffer

However, Oyadeyi’s study tells a more nuanced story. By examining the effects of macroeconomic uncertainty on Nigeria’s largest economic sectors from 1981 to 2023, he found that agriculture is increasingly vulnerable to the same factors destabilizing other industries.

1. Inflation Erodes Productivity

Inflation is one of the greatest threats to agriculture in Nigeria. Rising prices for fertilizers, seeds, and machinery have squeezed farmers’ margins, particularly smallholder farmers who dominate the sector. Oyadeyi’s findings underscore how double-digit inflation rates, which have plagued Nigeria for decades, undermine farmers’ ability to maintain productivity, let alone expand.

Global research echoes these findings. The International Monetary Fund (IMF) has noted that inflation disproportionately affects agriculture in developing economies, where the sector operates on razor-thin margins. Economist Dani Rodrik argues that without significant technological upgrades, agriculture in low-income countries cannot escape the productivity traps imposed by inflation.

2. Exchange Rate Volatility Hampers Exports

Nigeria’s agricultural exports, once a source of foreign exchange and economic stability, are increasingly at risk due to exchange rate volatility. Oyadeyi shows that fluctuations in the value of the naira have made it more expensive to import essential agricultural inputs, while simultaneously reducing the predictability of export revenues. These dynamics discourage both domestic and foreign investment in the sector.

Paul Collier, in his influential book The Bottom Billion, explains how smallholder farmers in developing economies are particularly vulnerable to such volatility, which limits their ability to access global markets and capitalize on export opportunities.

3. Policy Inconsistencies Amplify Vulnerabilities

While Oyadeyi focuses on macroeconomic variables, his findings reveal an implicit critique of Nigeria’s policy environment. Decades of inconsistent agricultural policies—ranging from sudden subsidy cuts to erratic export bans—have left the sector without a coherent strategy for growth.

These observations align with arguments made by Rodrik and the Food and Agriculture Organization (FAO), which emphasize that policy unpredictability is one of the biggest deterrents to agricultural resilience in developing economies. Nigeria’s experience is a textbook case of how wavering government support can magnify vulnerabilities during times of economic instability.

Strengthening the Resilience of the Agriculture Sector in Nigeria

Oyadeyi’s study underscores the need for targeted interventions to reinforce agriculture’s role in Nigeria’s economy. Drawing on both his findings and global insights, the following steps could help mitigate the sector’s vulnerabilities:

1. Subsidize Critical Inputs

The Nigerian government could introduce subsidies for fertilizers, seeds, and fuel to shield farmers from inflationary pressures. This approach has proven effective in countries like Kenya, where agricultural subsidies have stabilized production during economic crises, as highlighted in research by agricultural economist Esther Duflo.

2. Enhance Export Support

To counter exchange rate volatility, policymakers should establish mechanisms like guaranteed minimum prices for export crops. This would provide farmers with a safety net and encourage consistent production, as demonstrated by Brazil’s successful export-support policies.

3. Invest in Climate-Resilient Agriculture

Given the increasing impact of climate change on agricultural productivity, investments in drought-resistant crops, irrigation systems, and weather forecasting technologies are essential. The FAO advocates these measures as critical for safeguarding agricultural output amid environmental and economic challenges.

4. Strengthen Policy Frameworks

Inconsistent agricultural policies undermine investor confidence. Nigeria could benefit from adopting a long-term agricultural strategy, similar to Brazil’s Plano Safra, which has successfully boosted productivity and exports. Scholars like Rodrik argue that predictable and stable policies are essential for sustaining sectoral growth.

 Is the Agriculture Sector in Nigeria Still a Reliable Buffer?

Oyadeyi’s findings align with global research. During the COVID-19 pandemic, the Food and Agriculture Organization (FAO) noted that while agriculture initially appeared resilient, prolonged macroeconomic instability—such as rising inflation and disrupted supply chains—began to take a toll.

In India, a country with a comparable reliance on agriculture, researchers like Ramesh Chand from India’s NITI Aayog have shown that even minor fluctuations in inflation or fuel prices significantly disrupt rural livelihoods. Nigeria’s experience serves as another case study in how macroeconomic shocks erode the perceived stability of agriculture.

Advocates for agriculture’s stabilizing role, such as the Nigerian agricultural economist Akinwumi Adesina, President of the African Development Bank, argue that the sector remains indispensable. Adesina has highlighted agriculture’s ability to provide food security, provide employment and drive rural development. Even with its vulnerabilities, proponents believe that agriculture’s scale and importance make it a natural candidate for countercyclical policies during economic crises.

On the other hand, scholars like Paul Collier and Dani Rodrik caution against over-reliance on agriculture. They argue that the sector’s stabilizing power diminishes in the face of modern economic shocks without substantial investment in technology, infrastructure, and climate resilience. Collier points out that agriculture’s productivity gains have lagged behind other sectors, leaving it ill-equipped to withstand prolonged macroeconomic instability.

It seems Nigeria’s experience highlights a broader truth: agriculture can no longer be relied upon as an infallible economic buffer.  Perhaps the true policy solution to the problems confronting the agriculture sector in Nigeria is for the country to focus more on achieving stronger macroeconomic performance rather than special interventions for the agriculture sector.

 

 

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