EFFECT OF PALM OIL PRICE FLUCTUATIONS ON THE WELFARE OF PALM OIL PRODUCERS IN NIGERIA
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Date
2021
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Abstract
The economic importance of palm oil, in household food requirements, income generation,
production and consumption has led to both a significant increase in demand and fluctuations in
its price over the years. This study, therefore, examines the effect of palm oil price fluctuations on
the welfare of palm oil producers in Nigeria. Annual time series data ranging from (1980 to 2018)
were collected on relevant variables and analysed using Line Graph and Growth Function
Analysis, Augmented Dickey Fuller test for Unit root, Johansen Co-integration test, Vector Error
Correction Model (VECM), Impulse Response Function (IRFs), Variance Decomposition (VD),
Pair-wise Granger Causality test and Autoregressive Distributed Lag Model (ARDL). The result
of the growth rate analysis shows that all the variables ( Exchange Rate, Inflation rate, Palm oil
export and Palm Oil Price) exhibited positive trends and statistically significant at 1% significant
level in the period under the study. The result of the Johansen co-integration test indicated the
presence of long-run equilibrium relationship between exchange rate(ER) and palm oil export
(POE) at 5% significant level. Furthermore, error correction model (ECM-1) implies that previous
years’ shocks in the ER are transmitted to POE at slow adjustment rate of about 5.7%, ceteris
paribus. Pair-wise granger causality test on ER and POE implied that ER granger-caused POE at
5% significant level (0.0205) with unidirectional causal relationship. In the same vein, the result
of Autoregressive Distributed Lag Model (ARDL) indicates presence of long-run relationship
when Welfare (WELF) is regressed against explanatory variables (POP, INF, and POE) and each
variable containing information for the prediction of other variables. The short run dynamics
adjusts to the long-run equilibrium at 13% in the current year, ceteris paribus. The study therefore
recommends that backward integration policies should be adopted by the government and also
government should formulate policies that will mitigate palm oil price fluctuations effect and its
control variables on palm oil producers in Nigeria.