ABSTRACT

The study attempts to estimate the effect of fertilizer demand on arable crop production under subsidy and non-subsidy regimes in Nigeria. Output response of crops to quantity of fertilizer used is an important factor in assessing the success of fertilizer subsidy policy. Using time series data for the years 1970 to 2002, the study employs Autoregressive-Distributed-Lag- Error-Correction-Model (ARDL-ECM) to estimate six output functions for selected arable crops and a fertilizer demand function. The results show that only the output of pulses and cowpea respond positively and significantly to quantity of fertilizer used. The output of all the crops exhibits a long-run equilibrium relationship with quantity of fertilizer used. The ECM coefficient showed a rapid speed of adjustment of crop output and fertilizer use to the error correction term. This is an indication that both variables adjust to the long-run growth path fairly quickly following a disturbance. The real producer price of all the arable crops with the exception of rice contrary to apriori expectation had negative effect on the output of the crops. This does not really suggest that the farmers are not responsive to price signals. A possible explanation for this downward sloping supply curve is that the farmers irrespective of the market situation would at least continue to produce for farm household consumption. In a subsistence agrarian economy like Nigeria, it could also be reasoned that the value of the production margin that goes out of the farm-gate may not be able to provide a strong basis for production decisions. The study extensively shows a strong positive correlation between the harvest area and output, which is an indication that increases in production of these crops have resulted mainly from the expansion of cultivated area. Since the opportunity for such expansion is limited, one of the policy deductions of the study emphasized on the development of indigenous methods of improving land quality in order to raise productivity. Credit supply as expected had a positive and statistically significant effect on the output of cowpea while the effect on the output of roots and tubers, and maize contrary to expectation was negative but statistically significant. This relationship is evident of the speculation that fanners often divert loans meant for farming activities to other purposes. It could also be an indication of the inconsistencies and inefficiencies associated with credit disbursement schemes in Nigeria, whereby businessmen and civil servants hijack credits meant for farmers. The study recommends a holistic development approach to ensure that the complementarities between fertilizer, credit and other external inputs are enhanced. It was also evident from the study that while the growth in harvest area contributed 97.3, 90.1 and 101.26 percent to the output growth of cassava, maize and rice respectively within the entire period, productivity contributed merely 2.7, 9.9 and -1.26 percent respectively. The study in view of these fmdings recommends that a consensus be built around the key issues in increasing fertilizer use in Nigeria. This will accelerate the access of millions of poor farmers to fertilizer and other complementary inputs and ensure optimal use of these inputs to help the farmers raise their productivity, achieve food security and reduce poverty.