THE EFFECT OF INFLATION AND INTEREST RATE ON AGRICULTURAL PRODUCTIVITY IN NIGERIA FROM 2000-2015
CHAPTER ONE
INTRODUCTION
1.1 Background of the study
Inflation has been apparent in Nigeria from the outset of her national life as it was propelled in the 1960s through the “cheap money policy” adopted by the government to stimulate development after independence (Bayo, 2005). Nigeria has experienced all manners of inflationary episodes, from creeping to moderate and from high to galloping (Olubusoye and Oyaromade, 2008). Inflationary pressure in Nigeria was largely contained in 2010 and 2011, though the rate remained above the national and the West African Monetary Zone (WAMZ) single-digit inflation rate target (CBN, 2011). However, the 12-month moving average headline inflation rate was 10.8 percent in 2011, compared with 13.7 percent at end-December 2010. The agricultural sector is strategic to national economic development and contributes 42.1% of the current GDP (Eleri et al., 2012). It remains a major source of food and raw material for agro-industrial processing and has strong links to employment, national income, market opportunities for industrial production and strong potentials for poverty reduction and health improvement. However, Nigerian agriculture faces tremendous challenges which include the rising food prices amongst others. Food price inflation has risen in recent years because of many factors, on and off farms throughout the world (Oppedahl, 2009). The future direction of world food prices will depend on whether research and development increases agricultural productivity faster than the growth in world food demand. Key sources and features of recent increases of food prices in developing countries have been identified as being the underinvestment in agricultural innovation and rural infrastructure, shift of land and crops towards biofuel feedstocks, natural disasters, high global energy prices, unequal distribution of resources, mismanagement of natural resources, population growth and competition for land and water (Alam and Shahiduzzaman, 2008) Global food prices registered a new high in February 2011, rising by more than 30 percent year-on-year, underpinned by large increases in the prices of cereals, edible oils, and meat (ADB, 2011). While the recent price increases were triggered largely by production shortfalls due to bad weather, structural and cyclical factors that were at play during the 2007–2008, food crisis continue to be relevant, especially in the light of the strong recovery of many emerging economies from the global economic crisis. Inflation is undeniably one of the most leading and dynamic macroeconomic issues confronting most economies of the world and has become a leading topic of discussion in Nigerian families and press as its effects penetrate more deeply into nation’s life due to prevailing increase in prices (Olatunji et al., 2010). The consumer price index for food over the years in Nigeria constituted a larger proportion of the composite consumer price index and as noted by Oppedahl (2009), households in developing countries spend more on food relative to overall spending and therefore, food price inflation had played a bigger role in overall inflation. Despite the critical position of inflation in the macroeconomic environment of Nigeria, research efforts have not hitherto addressed the links between the direction of inflation, agricultural productivity and economic growth over the years in Nigeria and therefore, this study was carried out to the effect of inflation and interest rate on Agricultural productivity in Nigeria from 2000-2015.
1.2 STATEMENT OF THE PROBLEM
Inflation is undeniably one of the most leading and dynamic macroeconomic issues confronting economy of Nigeria and has become a leading topic of discussion in Nigerian families and press as its effects penetrate more deeply into nation’s life due to prevailing increase in prices (Olatunji et al., 2010).
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