Demand for fertilizer in Nigeria: An application of cointegration and error correction modeling

Abstract

Input-output price ratio is an important factor in the use of purchased farm inputs. Sufficient empirical evidence is needed to guide rational and accurate prediction of fertilizer demand in a predominantly peasant, external input-driven agro-ecosystem. This study employed time series data for the years 1970 to 2005 to estimate relative price elasticities of fertilizer demand in Nigeria using price ratios of fertilizer to cassava. The autoregressive distributed lag error correction model (ARDL-ECM) produced a plausible estimate of short-run and long-run price elasticities of fertilizer demand with respect to the relative price ratio. The ECM coefficient showed a slow adjustment of fertilizer use to the error correction term, indicating that fertilizer use responds slowly to shifts and shocks in the determining variables. This implies that inspite of the inherent difficulties associated with using fertilizers in Nigeria, the farmers still recognize its relevance in crop production as well as the attendant economic benefits. Another plausible finding of the study was the positive correlation between fertilizer use and irrigation. Following these outcomes, it was advocated, in the main, that farmers should be well informed on market opportunities with consideration given to input and output prices. The onus lies in establishing a workable market information system that would provide timely information with respect to spatial and temporal price variations in both input and output markets. In this same vein, emphasis was laid on developing irrigation infrastructure as a major policy thrust for fostering fertilizer use across the country