CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Agriculture was the mainstay of the Nigerian economy before independence and immediately afterwards, until the oil boom of the 1970s. Before then, agriculture supplied the food the population needed and was also a major earner of foreign exchange. As the oil sector expanded, high oil revenues led successive governments to neglect agricultural production, including rice (Gao et al., 2023). Most government policies have aimed at accelerating economic development, with the ultimate goal of transforming the economy into an industrialised one and improving the welfare of the population. This goal cannot be attained without a drastic boost to agriculture, which is expected to act as a catalyst in realising it. The traditional role of agriculture in economic development provides the foundation for this position. Johnston and Mellor (1961) identified four main contributions: a product contribution, a market contribution, a factor contribution and a foreign exchange contribution. Agriculture is the main source of food for most of the population, provides livelihoods for the majority of the people, supplies raw materials for agro-allied industries, and is a potent source of much-needed foreign exchange.

Rice is one of the world's most important food crops and a staple for a large proportion of the world's population, especially in India, China, other parts of Asia and Africa. In Nigeria, rice is a vital consumption staple and has also become an important cash crop that provides employment for a large proportion of the population in the major producing areas. Nigeria's domestic rice demand significantly exceeds local production, and the country has therefore relied on imports to expand its total supply: Akinsola et al. (2025) report an average yearly shortfall of about 2.4 million metric tons between 2007 and 2018 and a significant gap between rice demand and supply that reflects a high dependence on foreign rice.

Over the years, several government programmes have attempted to stimulate domestic rice production, with the goal of closing the growing gap between demand and supply and making Nigeria more self-sufficient in rice. Two of the most recent programmes in the period of this study are the Presidential Initiative on Rice (PIR), established in 1999, and the National Programme for Food Security (NPFS). Trade policies have also been used, including periods of import bans and tariffs aimed at encouraging local rice production. A historical review of about fifty years of policy found that Nigeria's trade policy on rice has seesawed between protection and liberalisation, and that, whichever way policy has moved, it has not directly increased rice production or reduced dependence on imported rice (Gao et al., 2023). Despite these policies and programmes, domestic rice consumption has continued to outpace domestic production, giving rice imports an ever-increasing role. Rice imports have grown steadily in Nigeria, and the growth is expected to continue because of rising demand driven by higher incomes, urbanisation and the associated expansion of fast-food restaurants. In general, of the estimated five million metric tons of rice consumed annually in Nigeria, domestic output still hovers around three million metric tons, leaving a gap of about two million metric tons a year, which continues to encourage dependence on imports.

Several reasons explain the gap. They include improper production methods, the scarcity and high cost of inputs, rudimentary post-harvest and processing methods, inefficient milling techniques, and poor marketing standards, particularly in polishing and packaging. Low mechanisation on rice farms also means heavy reliance on manual labour for all farm operations. Another reason is that imported rice is viewed as being of better quality than locally produced rice, so that domestic and imported rice are not perfect substitutes. A further explanation is that Nigeria's long history of consuming imported rice has created habit persistence and consumption inertia, which makes it harder for locally produced rice to compete.

Achieving sustainable economic development in Africa confronts three central challenges: alleviating widespread poverty, meeting current and future food needs, and using the natural resource base efficiently to ensure sustainability. Nigeria's population was estimated at about 160 million in 2010 (World Bank, 2010) and was growing rapidly. Nigeria must therefore draw lessons from Malthusian population theory (Malthus, 1798) and from the human-capital-led growth path of the East Asian economies such as Singapore, Taiwan and Malaysia (World Bank, 1993), by exploiting comparative advantage in production and combining import substitution with export promotion in trade. This implies self-sufficiency in food, which is currently lacking because the country imports much of the food needed to meet local demand. The implications of food imports, as opposed to food exports, are becoming increasingly critical for growth and development. The thrust of this study is to ascertain the impact of rice importation on rice production in Nigeria.

1.2 Problem Statement

The need for a country to attain self-sufficiency in food as a means of economic development cannot be overemphasised, and it was among the goals of the Millennium Development Goals (MDGs), a concern that the Sustainable Development Goals (SDGs) have continued under the goal of ending hunger (United Nations, 2015). Nigeria has long clamoured for growth, but much of its policy has targeted macroeconomic indicators such as inflation, the balance of payments, exchange rates and the debt profile, while comparatively little attention has been given to the agricultural sector.

The status of rice in the average Nigerian diet has changed from that of a luxury item to that of a staple, taking the place of cassava and yam. Empirical evidence suggests that the price elasticity of demand for rice in urban markets is low. This has been the driver of increasing tariffs in the recent past: because demand is inelastic, tariffs can be raised without a corresponding fall in demand, rice being regarded as a convenience food in many urban centres, so that government can continue to use high tariffs to protect domestic producers without a matching decline in demand for rice. Tariffs, for example, were as high as 100% in 1995 and 2003 and stood at 50% between 1999 and 2002. Despite these high tariffs, however, domestic production is still insufficient to meet local demand.

Before 1960, imports did not play a significant role in the Nigerian economy, as shown by the fact that agriculture was the largest contributor to GDP. As the contribution of the petroleum sector to Gross Domestic Product (GDP) rose and that of agriculture declined, because resources and the attention of policy makers were increasingly focused on petroleum (Gao et al., 2023), the share of imports began to rise. Total import value rose from N756 million in 1970 to N1.9 trillion in 2003, while the value of food imports rose from N58.5 million in 1970 to N261 billion in 2003 (Central Bank of Nigeria [CBN], 2004).

Furthermore, the demand for rice in Nigeria has been increasing at a much faster rate than in any other African country since the mid-1970s (Food and Agriculture Organization [FAO], 2001). During the 1960s, for example, Nigeria had the lowest per capita annual rice consumption in the sub-region, at an average of 3 kg a year. Since then, per capita consumption has grown by 7.3% per annum, averaging 18 kg in the 1980s and 22 kg in 1995–2000. In an apparent response to this increase, local production boomed, averaging 9.3% growth per annum. This increase has been traced mainly to a vast expansion of rice area, at an annual average of 7.9%, and to a lesser extent to a rise in yield of 1.4% a year (FAO, 2001). Even so, the increase in production was not enough to match the increase in consumption. To address the gap between demand and supply, governments have at various times introduced policies and programmes, but these have not been consistent. The fluctuations in policy and the limited capacity of the Nigerian rice sector to match domestic demand have raised a number of pertinent questions in policy circles and among economists. For example, what factors explain why domestic rice production lags behind demand for the commodity in Nigeria? Considering these issues, this study seeks to answer the following questions:

1. What is the impact of importation of rice on rice production in Nigeria?
2. What is the impact of government expenditure on rice production in Nigeria?
3. What is the impact of the balance of payments on rice production in Nigeria?

1.3 Objectives of the Study

The broad objective of the study is to evaluate the impact of food importation on food production in Nigeria. The specific objectives of the study are:

1. To ascertain the impact of rice importation on rice production in Nigeria.
2. To ascertain the impact of government expenditure on rice production in Nigeria.
3. To ascertain the impact of the balance of payments on rice production in Nigeria.

1.4 Research Hypotheses

The research hypotheses that will guide this study are stated as follows:

1. Rice importation does not have impact on rice production in Nigeria.
2. Government expenditure on agriculture does not have impact on rice production in Nigeria.
3. Balance of payments does not have significant impact on rice production in Nigeria.

1.5 Significance of the Study

The impact of food importation on food production and on the balance of payments needs to be evaluated so that appropriate policy can be formulated on food import restrictions in Nigeria. Balance of payments (BOP) equilibrium measures the extent of transactions between Nigeria and other nations, and it is calculated from the level of exchange of goods and services in monetary values, specifically in United States (US) dollars. This study estimates the effect of food importation and production on the balance of payments, with the intention of ascertaining whether they have a significant effect on the country's current account balance. The study will therefore be of immense benefit to policy makers, government officials, students and other stakeholders in the economy, as it gives direction on how to improve agricultural policy in Nigeria (Akinsola et al., 2025).

The researcher also expects that the study will raise awareness of Nigeria's import position, of its comparative advantage or disadvantage in rice production, and of the general state of the agricultural sector. The recommendations from its findings will also point to the direction in which policy makers can anchor their policies, and the study will serve as a point of reference on which other researchers can build.

1.6 Scope of the Study

The study focuses on the impact of food importation on food production in Nigeria, as it relates to rice importation and production. It is based on data on rice production and importation in Nigeria from 1980 to 2011.

1.7 Structure of the Study

The study is organised into five chapters. The first chapter is the introduction. It covers the background of the study, which sets out the starting point of the work; the problem statement, which defines the challenges that prompted the study; the objectives, which define the exact direction the study takes; the research hypotheses; the significance of the study; and its scope and structure. Chapter two is the literature review, which deals with the theoretical literature, the empirical literature and the limitations of previous studies. Chapter three covers the model specification, the specification of the dummy variable, the estimation technique, pre-estimation tests, the unit root test, the co-integration test, the error correction mechanism and data sources. Chapter four presents and interprets the results, including the impact of rice importation on rice production, the evaluation of the working hypotheses, and the tests of hypotheses 1, 2 and 3. The last chapter, chapter five, presents the summary, policy implications and conclusion of the study.

References

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Central Bank of Nigeria. (2004). Annual report and statement of accounts. Central Bank of Nigeria.

Food and Agriculture Organization of the United Nations. (2001). FAO production yearbook. FAO.

Gao, Y., Zhao, T., Xu, X., & Ndidiamaka, A. P. (2023). Can agricultural protectionist policies help achieve food security in Nigeria? Frontiers in Sustainable Food Systems, 7, Article 1095914. https://doi.org/10.3389/fsufs.2023.1095914

Johnston, B. F., & Mellor, J. W. (1961). The role of agriculture in economic development. American Economic Review, 51(4), 566–593.

Malthus, T. R. (1798). An essay on the principle of population. J. Johnson.

United Nations. (2015). Transforming our world: The 2030 agenda for sustainable development (A/RES/70/1). United Nations.

World Bank. (1993). The East Asian miracle: Economic growth and public policy. Oxford University Press.

World Bank. (2010). World development indicators 2010. World Bank.