An economic analysis of Nigeria's import substitution policy for rice and wheat

The study involves analyses of substitution effects of Nigeria's import restriction imposed on rice and wheat; in terms of domestic production, consumption and prices. The theoretical and empirical literature on uncertainty, risk and self sufficiency under international trade is reviewed, as well as smuggling and its welfare implications. The analyses involves use of regression and correlation models. The result shows that increase in price of wheat would reduce per capita wheat consumption, thereby shifting consumption to maize and millet. It is found that wheat and rice are inferior commodities in Nigeria. In addition, increase in the prices of yam and maize would increase per capita rice consumption . Therefore, yam, maize and rice are substitutes in consumption, so also are wheat and rice in production. An increase in price of rice would increase rice area while increases in prices of maize and wheat would increase wheat area. While increase in the price of rice would lower wheat production, thereby favouring rice production in the longrun. Accordingly, increase in world prices for rice and wheat would lower their domestic prices. While increase in tariff would increase domestic wheat producer price. Between 1973 and 1986 prices of most food commodities in Nigeria increased both nominally and in real terms. In addition, real prices for rice and wheat slumped between 1987 and 1989. Retail prices were always higher than producer prices. It is concluded that insulating domestic prices and supplies of rice and wheat is no panacea to problems associated with price instability, self sufficiency and balance of payments. Sustainable policies, such as consumption tax; use of futures markets; diversification and appropriate exchange rate are the best policy options