Farm households’ input demand and output supply response to price shocks in Nigeria

Abstract

Panel data on farm household output for a full range of commodities are scarce, and as a consequence, only a few other studies have considered estimating farm household output supply and input demand response to price changes in Nigeria using panel data within the multiple inputs and multiple outputs frameworks. This study examined the extent to which farm households' respond to production inputs and output price changes using panel data covering the period 2010-2016. Specifically, to determine whether a commodity output's price positively affects its supply and other output categories; and whether an input price negatively affects its usage in Nigeria within the multiple input and multiple output (MI-MO) framework. The translog profit function was used to simultaneously examine the production response of farm households' in terms of the factor demand and produce supply. Seven output supply and four input demand equations were estimated. The results indicated that the response of output supply to own price ranged from 0.59 for animal products and 1.24 for cereals. The own-price demand elasticities of farm input range from -0.82 for mechanisation to -1.46 for intermediate inputs. Also, a substantial degree of farm households' response to input price shocks. Farm inputs and outputs were economic complements to price changes. Therefore, price policy issues aimed at improving the production response of farm households' to both input and output price shocks should be developed with a particular focus on farm inputs.