Analysis of Spatial Price Efficiency in Rural and Urban Markets in Nigeria

Analysis of Spatial Price Efficiency in Rural and Urban Markets in Nigeria

Benjamin C. Asogwa (University of Agriculture, Nigeria), Peter I. Ater (University of Agriculture, Nigeria) and Jacqueline A. Ezihe (University of Agriculture, Nigeria)
Copyright: © 2014 |Pages: 14
DOI: 10.4018/978-1-4666-4635-3.ch025
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Abstract

The purpose of this chapter is to analyse spatial price efficiency of food products in rural and urban markets in Benue State, Nigeria. A weekly market survey was carried out for 40 weeks in rural and urban markets in Benue State in order to generate data for the study. The study indicated that price association existed between the base (urban) market and the supplying (rural) markets. There was great variability in the prices of food commodities between the base market and the supplying markets. The result of the study also showed that there was a marked price differential between the base market and the supplying markets. Furthermore, interactions between the base market and the supplying markets were characterized by marked imperfections and inefficiency in the marketing system. Price information, including its quality and availability should be enhanced. Storage facilities and other social amenities should be provided for farmers in the rural areas where agricultural activities are predominant.
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Introduction

The goal of this article is to provide empirical evidence that will assist the reader develop a thorough understanding of the gains of spatial price efficiency of food products in rural and urban markets in Benue State, Nigeria. To accomplish this objective an attempt has been made to present the subject in a manner that will be beneficial to agricultural development policy makers and other stakeholders in agricultural development.

The broad objective of this study is to analyse spatial price efficiency of food products in rural and urban markets in Benue State, Nigeria. The specific objectives of the study are to:

  • 1.

    Analyse the degree of price association between the urban and rural markets.

  • 2.

    Quantify spatial price differential between the urban and rural markets.

The following hypothesis was stated and tested:

  • 1.

    There are no price associations between the markets in the study area.

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Background

Food is an indispensable source of energy and bodybuilding for both sustenance and maintenance of life. Food production has therefore continued to remain as a prime objective of any human being, government and organization even right from the time immemorial. Apart from food production, agriculture has contributed immensely to the growth and development of Nigeria economy by providing raw materials for agro-based industries as well as employment opportunities for her teeming population.

Production and marketing constitute a continuum, and lack of development in one retards progress in the other. To increase food production, therefore, there is need to develop a more efficient marketing system for the various crops (Olayemi, 1972). Most of the food crops produced however exhibit price variations over long periods of time and this has affected production, consumption and storage of such food crop. Higher prices of these food crops on one hand restrict the consumption of certain agricultural products and hence prevent some people the access to some basic food nutrients. On the other hand, lower prices deprive producers the necessary gains from resources used including financial, human and material resources.

This price variation is necessary if the private sector is to perform its marketing functions such as buying and selling, transportation, storage, processing, advertisement and assembling etc. Prices serve as incentives to direct the allocation of economic resources and, to a large extent, determine the structure and rate of economic growth (Tschirley, 1995).

This variability in prices occur sometimes due to natural factors such as weather, diseases, pest, low elasticity in supply of the products, inelastic demand for the products, seasonality and lack of storage facilities and inputs used. It may also depend on yield variability, transportation, and elasticity of supply, increase in population, lack of information and poor market intelligence. Variability in prices is also caused by inadequate fund and support for appropriate agricultural research studies, wholesalers’ cartels, inflated delivery costs, hoarding, quantity and quality fraud as well as unhealthy market control. Market failure is even more likely when the marketing channels are poorly developed. Indeed, this has frequently occurred in response to weather (D’Silva and Raza 1980).

The price variability has affected both the economy of the family and of the nation. Agricultural prices play a conflicting role even in the context of growth in agriculture and the demand for labour (and hence food) and close complements. Much of the increased demand for labour to complement accelerated growth in agriculture occurs in the non-governmental, although still rural sector (Mellor 1976). Rising food prices raise the cost of labour and hence slow the growth in demand for labour because food comprises a high proportion of the expenditure of labourers and a change in food prices has an immediate, inverse, and nearly proportionate effect on the real wage of labour. Also, price variability affects production. It also prevents future planning with some degree of certainties. It also affects the expenditure on other items and has led to malnutrition and under nutrition in some areas.

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