The Effect of Market Liberalization on Maize Price Distributions in Nigeria

Market liberalization is a major provision of the structural adjustment programme .This paper examined the nature of maize price fluctuations following the introduction of the reform .Secondary data on average monthly prices of maize covering the period 1983-2000 were sourced from various publications. Data on monthly prices were deflated by consumer price index of food items to construct real price series for maize. The econometric model, Autoregressive Conditional Heteroskedastic in Mean (ARCH-M) was employed to determine the effect of the policy reform on the mean and volatility of maize prices. The results of the ARCH-M model show that a sharp increase was observed in the first-order autocorrelation between the pre- liberalization and post- liberalization periods for both the mean (0.02 to 0.10) and variance (0.49 to 3.96). This implies that the long term changes in the price of maize due to free marketing are different from periods of administrative pricing. The variation was lowest in the pre- liberalization period relative to the post- liberalization period while the highest variability was experienced in the short term period immediately after the reform. The price of its close substitute, sorghum, and the border parity price affects the price of maize thus allowing for informal cross border trade in the post- liberalization period. The lagged prices of maize and seasonal changes reduce volatility in the price of maize between the pre and post liberalization periods. There are also differences in the volatility of maize price across regions. Regional differences show that volatility increased in Adamawa and Niger and decreased in Akwa Ibom in the post- liberalization period. Prices became more stable in the southern agro- climatic zones in the long run but were high in the northern savannahs. Policy makers can stabilize maize prices by disseminating information on price movements and keeping stock of maize for the dry season. Present efforts to increase productivity through improved access to inputs should be strengthened and effectively monitored to ensure increased output so as to increase maize stock. The conclusion is that the reform has increased the mean prices of maize and its volatility over the years, however, other factors have also contributed to price increase since Nigeria’s maize are only traded across close borders and the country is yet to be integrated into the world’s maize market.