Nature, Trends and Drivers of Food Price Volatility in Nigeria

Abstract

The volatility of food prices is an important risk factor which constitutes serious threat to the welfare of millions of people around the world, particularly in developing countries like Nigeria. The study therefore investigated the pattern and drivers of food price volatility in Nigeria using annual and monthly time series data from January,2000 to December, 2020. Data analysis was done using descriptive statistics, Coefficient of Variation, Auto-Regressive Conditional Heteroscedasticity (ARCH) model, Generalized Auto-Regressive Conditional Heteroscedasticity (GARCH) model, and Exponential GARCH (EGARCH). The study reveal volatility clustering between time period 2000 and 2012 but afterwards, the fluctuation observed in food prices was almost muted. Prices of most food items witnessed a forward leap between the periods 2000-2006 and 2007-2012, with the price of rice almost experiencing a threefold rise. Beyond this period, food prices have remained high, clearly surpassing their initial levels in 2013-2020. Returns on consumer price index, lending rates, exchange rate, and food price rate are important drivers of food price volatility in Nigeria. The study therefore recommends the need for an effective and sustainable price stabilization mechanism which involves holding strategic or buffer stock to protect the interest of producers against unstable prices.