GLOBAL OIL PRICE SHOCKS AND STAPLE FOOD PRICES RESPONSE IN KADUNA STATE, NIGERIA

Abstract

Oil prices traditionally have been more volatile than many other commodity or asset prices since
World War II and have a lot implications on major macroeconomic variables such as inflation,
money supply, capacity utilisation and inflation to mention a few. This paper identifies and
analyses the short-run and long-run relationships, and dynamic interactions among staple food
grains prices to global crude oil price shocks in Kaduna State using time series techniques of
Vector Error Correction Model (VECM). The objective of this study is to examine the short-run
and long-run effect of crude oil price shocks on selected staple food grains prices in Kaduna
State-Nigeria using time series techniques of Vector Error Correction Model (VECM). The price
data was collected for the periods of 312 months that is, 26 years (Jan. 1990-Dec. 2015) from
Kaduna State Agricultural Development Program (K.A.D.P.), Central Bank of Nigeria (CBN)
and the US Energy Information Administration (EIA).The variance decompositions and impulse
response functions based on a VECM specification suggests the presence of cointegration among
the variables. The estimated VECM model affirms the presence of asymmetries in the food price
behavior. The results show that in the short-run and long-run, global oil price shock has
significance impact on staple prices fluctuations such as: cowpea, maize, rice, soya beans. The
response of crude oil price fluctuation on the staple food grains prices was negative meaning
that an increase in global oil price leads to decrease in staple foodstuffs production and
agricultural marketing in the state. Hence, the study found significant positive oil price changes
in all cases with the expected positive sign, implying that increases in oil price lead to increases
in agricultural commodities.The study recommended that since oil price was important in
agricultural commodities prices, efforts should be geared towards local development of the oil
sector as this will bring about positive spillover effect on the agricultural sector and ensure food
availability at affordable prices thereby improving standard of living and welfare.