130 Int. J. Liability and Scientific Enquiry, Vol. 3, Nos. 1/2, 2010

Economic partnership agreements, common external tariff and prospects for staple food items in Nigeria

Chukwuma Agu* Investment and Trade Policy Centre Department of Economics University of Pretoria South Africa E-mail: shookslife@yahoo.com *Corresponding author

Anthonia Ifeyinwa Achike Department of Agricultural Economics University of Nigeria Nsukka, Nigeria E-mail: ifeyinwaachike@yahoo.com

Moses O. Oduh Department of Economics University of Nigeria Nsukka, Nigeria E-mail: oduhmoses@yahoo.com

Abstract: This paper looks into the potential impacts of the proposed Economic Partnership Agreement (EPA) between African, Caribbean and Pacific countries and the European Union (EU) on agriculture and food production in Nigeria. Using a partial equilibrium analysis, it assesses possible changes in production arising from the implementation of a Common External Tariff (CET) and/or EPA on three crops considered critical for livelihoods and food security: rice, cassava and sorghum. Results indicate that aggregate imports will increase, leading to possible crowding out of domestic agricultural output given their low processing quality. The production of rice and sorghum will suffer major falls. The fall in cassava, presently not much imported, will be less but not altogether negligible. The work recommends closer attention to the provisions of the Economic Community of West African States (ECOWAS) Common Agricultural Policy (ECOWAP) as a possible stop-gap measure to ameliorate the negative consequences of the EPA if it must be adopted in Nigeria.

Keywords: economic partnership agreement; EPA; Economic Community of West African States Common Agricultural Policy; ECOWAP; Nigeria.

Copyright © 2010 Inderscience Enterprises Ltd.

Economic partnership agreements, common external tariff and prospects 131

Reference to this paper should be made as follows: Agu, C., Achike, A.I. and Oduh, M.O. (2010) ‘Economic partnership agreements, common external tariff and prospects for staple food items in Nigeria’, Int. J. Liability and Scientific Enquiry, Vol. 3, Nos. 1/2, pp.130–143.

Biographical notes: Chukwuma Agu holds a PhD from the University of Nigeria, Nsukka, Nigeria and works with the African Institute for Applied Economics, Enugu, Nigeria. He is an alumnus of the Economic Modelling School, Brussels, Belgium and the Cambridge Advanced Programme on Rethinking Development Economics, and was a Visiting Scholar at the University of Oxford, UK in 2006.

Anthonia Ifeyinwa Achike holds a PhD in Agricultural Economics, specialising in Finance and Project Analysis. She is a Senior Lecturer in the Department of Agricultural Economics, University of Nigeria, Nsukka, Nigeria which she headed from 2005 to 2007. She is also a visiting Lecturer/faculty member of the Trade Policy Training Centre in Africa (TRAPCA) and an Associate Fellow of the African Institute for Applied Economics. She is affiliated to the African Economic Research Consortium, the Council for the Development of Social Science Research in Africa and the Social Science Academy of Nigeria, among many other notable local and international institutions.

Moses Onyema Oduh holds a PhD from the University of Nigeria, Nsukka, Nigeria and is a Lecturer with the Department of Economics at the same University. He is an Associate Fellow of the African Institute for Applied Economics, Enugu, Nigeria.

1 Introduction

Regional Integration Arrangements (RIAs) and Economic Partnership Agreements (EPAs) are fast becoming accepted as the major instruments for enhanced growth. The European Union (EU) success story, more than anything else, seems to buttress the acceptability (and indeed necessity) of such arrangements for development. Thus, in Sub-Saharan Africa (SSA), several RIAs are simultaneously ongoing. In West Africa, under Article 37 of its revised treaty, Economic Community of West African States (ECOWAS) member countries agreed to a Common External Tariff (CET). Given the World Trade Organization (WTO) rule of adopting the lowest average tariff, the Union Économique et Monétaire Ouest Africaine (UEMOA) tariff bands of 0%, 5%, 10% and 20% were adopted. All countries of the subregion are therefore expected to align duties imposed on imported goods with the UEMOA tariff rates. In addition, governments in the subregion are in the process of evolving a reciprocal EPA with the EU in what has been termed the African Caribbean Pacific–European Union Economic Partnership Agreement (ACP–EU EPA). The ACP–EU EPA is expected to be circumscribed by the WTO and lead to the lowering of tariffs on goods originating on either side by the parties involved. At the regional level, the ECOWAS common market and the ACP–EU concessional arrangements have been in place for a long while.

But there are challenges: the transformation of the ACP–EU relationship into a reciprocal arrangement seems to pose some problems for the ACP party. For example, it is not clear what impact a change in tariff structure under both the CET and EPA will

132 C. Agu, A.I. Achike and M.O. Oduh

have on the real sector – particularly agriculture – with all the implications for poverty reduction and sustainable livelihood in member countries. It might also help to ask whether a regional market is possible in ECOWAS. This question can be asked in two parts: First, is such a union feasible? Second, is it desirable? There is no doubt that the ACP–EU EPA provides inviting opportunities for the comparatively poor ACP countries to increase their share of world trade through the EU window. But again, the process, method, speed and timing of the negotiations have raised more questions than answers. For instance, how will Nigeria’s current inconsistent protectionist trade policy design be reconciled with the EPA’s time-bound demand for a regime of trade liberalisation and further pressure of reciprocity? Obviously, the speed and force of an EPA-driven liberalisation far exceeds the pace of trade policy refinement in Nigeria and may break the ‘trade shield’ that somewhat covers the local industries and business actors in the country. Also of importance is the fact that the framework of the EPA is regional, and it involves the EU, which has mastered the act of trade negotiation over a long period in the history of world trade. Besides, there are really no assurances that the supply response in ACP countries will rise to match the increased market. Consequently, analysts worry about the sort of relationship that the current arrangement holds for the developing countries involved – a symbiosis or parasitism – and what the prospects for poverty reduction and sustainable livelihood, especially through its impact on the agricultural sector, would be. Unfortunately, little empirical work has so far been devoted to analysing the impact of the EPA and CET on agriculture in Nigeria and other West African countries; hence, this study. The rest of the work is organised as follows: Section 2 reviews agricultural production and trade policy in Nigeria. Section 3 provides a model and some estimates of the impact of tariff reduction on selected agricultural products using elasticities of import and output response to changes in tariff, while Section 4 concludes the work with policy recommendations.

2 Agriculture in the Nigerian economy

Agriculture takes up a very significant proportion of both employment and output in the non-oil sector of the Nigerian economy. Before the advent of the oil industry and at earlier stages of development, agriculture contributed over 60% to total output and employment in the economy. Since the 1980s and particularly in the 1990s, the agricultural share of total Gross Domestic Product (GDP) has stood at about 40%. When combined with mining and quarrying, the total share of the primary sector is over 50%. Though the share of agriculture in total output dwindled with the discovery of oil and emergence of several shades of services, it is still the dominant economic activity of the rural population and is also the largest single employer of labour, providing livelihood to 66% of the total labour force.

However, growth in agriculture relative to other sectors in the overall macro economy has been epileptic and volatile and consistently missed target numbers, particularly in recent years. Table 1 shows target and actual growth rates of agriculture from 1986 to 2007. When compared to targets, agricultural growth has been much lower except for the 2004–2007 period. For example, while the target growth rate averaged 6.65%, actual growth rate in the sector was no more than 3.62%, about half the target rates. The major factors accounting for the poor performance of agriculture range from low producer prices, marketing restrictions and climatic factors (drought, flood,

Economic partnership agreements, common external tariff and prospects 133

desert encroachment, etc.) to poor technology, an ageing workforce and inconsistencies in policy. Most of the man-made factors like technology and policy have hardly changed since the country’s independence. Years of good performance as witnessed for 2004–2007 often are no more than the result of improved weather conditions.

Table 1 Annual average growth in agricultural production

Percentage (%)

Rolling plan period Target growth in

agricultural production Actual growth in agricultural production (annual average)

1986–1992 8.5 3.8

1993–1995 7.2 3.5

1995–1997 7.2 3.7

1996–1998 6.1 3.8

1998–2000 5.1 3.2

2000–2003 5.8 3.7

2004–2007 6.0 6.5

Sources: Eboh (2004); United Nations (1995); data adapted from CBN (2007)

As a result of the nature of agriculture in Nigeria, the country does not really have food security. This paradox has been attributed to a number of factors including the fact that small-scale farmers account for 81% of the total land area and 95% of the total agricultural output. This class of producers has a low capital base, antiquated technology, poor market access and a host of other socioeconomic disadvantages caused by poverty and poor management of agricultural cropland. In fact, it has been estimated that rangeland degradation, forest losses and other forms of degradation arising from poor farm technology in Nigeria cost the country between N590 billion and N725 billion (US$4.4 billion and US$5.5 billion) per year (Eboh et al., 2005). These are just direct costs and do not include the economic multiplier effects and dynamic losses from forfeited gains of increased rural incomes that would have been the case in the absence of the degradation. The situation is further compounded by the complete absence of appropriate agricultural production and trade policies directed at these small-holder farmers.

It is therefore not surprising that agricultural growth in Nigeria in the past two decades has been characterised by a tripling of area harvested (FAO, 2004), while yields of many major crops have fallen. Land under crop cultivation is now near its maximum capacity in many states. According to satellite data Land Use and Vegetation (LUV), already by 1995 cropland occupied nearly 70% or more of the total land area in 40% of the states. It also appears from available data that cropland expansion is increasingly taking place on marginal land with lower yields, low or complete lack of productivity gains and lack of off-farm and urban income opportunities for an ever increasing population. A time series analysis of yields in relation to hectares harvested and other factors affecting yields over the period 1961–2004 seems to confirm that expansion in large part is on marginal land, especially for cereals, as shown in Table 2.

134 C. Agu, A.I. Achike and M.O. Oduh

Table 2 Regression analysis of cereal production, 1961–2004

Variable Regression coefficient

Area harvested 0.7 (elasticity)

Fertiliser application 0.05 (elasticity)

Technology improvement 0.02 (annual productivity)

Land productivity –0.15 (percent change)

Source: Eboh et al. (2005)

Overall, the agricultural sector in Nigeria presents a number of paradoxes. Its distinguishing features are its high employment, input and potential but very low productivity and market share and high contribution to poverty. Relating these to the protocols of the proposed EPA between Nigeria (and perhaps other African countries) and the EU raises a number of challenges. We summarise these in the following paragraphs.

Agriculture in Nigeria is dominated by small-scale farmers who account for 81% of the total land area and 95% of the total agricultural output. This implies that short-term prospects in agricultural production, trade and impact of EPAs on agriculture depend on these small-scale farmers and their socioeconomic features, and that evolving a new generation of farmers can only be a long-term strategy. The average size of farm holdings is less than two hectares. This implies that the sector is dominated by uneconomic and noncompetitive farm holdings, which inherently lack the capacity for modernisation and global competitiveness, and so only scale-neutral technologies make sense. Hence, trade openness and liberalisation (particularly with an agriculture-subsidising and exporting EU) may not be beneficial in the short run. Even in the long run, concerted efforts have to be made to increase the scale of operation in the sector to make it competitive before opening up.

The rural share of the total population is 60%, and 90% of these rural folk derive their livelihood from agriculture. This signifies that agricultural development is tied closely with rural development, and this must be factored into trade negotiations, policy formulations and EPAs. The agricultural share of the total population living below the poverty line is 65%, implying that growth and development in the agricultural sector is a key route to poverty alleviation. So far, not much has been seen in EPA negotiations on this issue. The agribusiness share of the total number of enterprises is about 70%, indicating that agriculture is a sector with the highest numerical strength of businesses, though with much room for improvement. Majority of these businesses barely break even. Trade negotiation might have to first target the revitalisation of these businesses. The agricultural share of total employment is about 60%; hence, it is the largest single employer of labour. Targeting a rechanneling of some of this labour through retraining while improving the productivity of the rest will definitely be helpful. However, it is not clear that these are strongly being put on the table of EPA and CET negotiations and other trade policy programmes.

The sector has clearly not been helped by the structure of trade policy in Nigeria, which is characterised by a high degree of arbitrariness, inconsistency, poor focus and frequent changes. Trade policy statements are often vague and difficult to measure. It is

Economic partnership agreements, common external tariff and prospects 135

safe to say that agricultural production and trade have not received much facilitation from trade policy in the country. Table 3 summarises the major trade policy regimes (including the average tariff in those regimes) and performance of key agricultural products.

Table 3 Implicit tariff and growth in output of selected agricultural commodities

Year Average tariff

(implicit)

Percentage change in rice

production

Percentage change in cassava

production Percentage change in sorghum production

2001 37.07 8.22 0.80 0.69

2002 17.84 29.52 1.94 6.71

2003 23.10 5.71 1.62 6.49

2004 22.58 15.21 9.58 –2.83

2005 9.94 4.72 11.24 11.21

2006 8.97 2.50 0.39 1.97

2007 8.09 2.02 3.76 0.97

2008* 4.84 NA NA NA

Note: * third quarter (2008).

Source: Authors’ calculations based on data from CBN and FAOSTAT

3 Impact assessment of EPA and CET on agriculture

3.1 Selected products

Three agricultural products form the bedrock of this analysis: rice, cassava and sorghum. Two considerations underpin the selection of the products: their contributions to sustainable livelihood and poverty reduction and their export potentials. These were extracted mainly from the literature and interaction with stakeholders. All three items are also part of the ongoing presidential initiative on selected agricultural products.1

Rice is presently a very important staple food in the country. It also has a high export potential. However, a major problem of domestic rice is the low quality of its packaging. The technology for destoning is still rudimentary to the effect that domestically produced and packaged rice does not compete effectively with its foreign counterparts. Currently, rice imports constitute up to 30% of the total agricultural imports in the country. This shows the strategic nature of the item for sustainable livelihoods. Enhancing domestic production can go a long way in creating jobs and increasing food security, and thus securing the economic independence of the country.

Nigeria is estimated to be the second largest producer of cassava globally. However, over time, production has been based on low technology and largely limited to domestic demands. However, the presidential initiative on the product seems poised to change the structure of the industry. Interactions with stakeholders reveal that cassava stems are now a premium commodity, as investment in the production of cassava increased considerably in the last five years. The appeal of most of the current investment in the sector is export potential. With a lot of derivative products from cassava, the export potential is quite high and production is now struggling to meet the growing export demand.

136 C. Agu, A.I. Achike and M.O. Oduh

Sorghum is one of the most cultivated crops in the country, and Nigeria is the third largest producer of the crop in the world. It is produced mainly in the middle belt. The average annual output of sorghum in Nigeria is put at 7 096 000 metric tonnes between 1990 and 1998. Given the versatility in its use as well as its potential for export, sorghum holds the promise of helping reduce poverty if only a little more policy attention could be given to it. Currently, much of the sorghum in Nigeria is produced by subsistence farmers but there is potential for export especially with a little help in pest control.

3.2 The model

We start by considering a change in the world price, tariff or exchange rate facing a single crop. The price of a good that is traded internationally will be largely if not entirely determined by the world price. The literature on growth linkages (e.g., Laird et al., 2004; Morrissey et al., 2003; Bhalla, 2002; Tarr and Gurgel, 2003) argues that agricultural liberalisation and productivity growth are very effective at poverty alleviation because their demand spillover is heavily concentrated on relatively employment-intensive and localised activities in which the poor have a large stake. The model, therefore, follows a normal production function specified as a log-linear model where the determinants of domestic production in an open economy are domestic prices, i.e., the tariff and the real exchange rate.

Theoretically, demand and supply are both functions of price and income. Equally, the problem of identification in the conventional identity (Q = Q (P, Y)) could be tricky. However, at the macroeconomic level, this problem is reduced because, empirically, the point of focus is the elasticity coefficient, especially in circumstances where the macro aggregates of total imports and production have already been individually identified. As such, the analysis that follows assumes that both demand and output supply interact within the same economy and are basically defined by the same set of macro aggregates, but in varying degrees and directions. Economy-wide aggregate output is defined by the GDP (in real terms). Textbook relationships in terms of direction of impact hold here.

Economy-wide relative price is defined by the real exchange rate. Conceptually, the real exchange rate is defined as the sum of major macroeconomic fundamentals of production and consumption in a country relative to its trading partners. But practically, it is obtained as the product of the nominal exchange rate and relative trade weights of tradables in each trading partner’s baskets and the value of trading partner currencies vis-à-vis the domestic economy as follows:

RER = NERdj*(Σi – j P*ij . TWij) / Pdj

where:

RER = the domestic real exchange rate

NER = the nominal exchange rate of the domestic currency vis-à-vis the currencies of the country’s trading partners

P* = the price level in the countries concerned

Pd = the domestic price level

TW = the trade weight of the i-th country at period j with the domestic economy.

Economic partnership agreements, common external tariff and prospects 137

To get the relevant Pij, which represents the price level of the j-th trading partner, a weighted average of the trade shares and price levels of the individual partners is employed.

Tariff is also a price, but not an economy-wide pervasive price in the class of the real exchange rate. It is taxed on individual products and covers only tradable items. In the import demand function, and with analysis focused on tariff changes, the elasticity of each commodity to the tariff will show the extent of its reaction in the event of a removal or reduction in the tax rate given the implementation or adoption of the EPA and CET. For imports, the tariff acts as the price and so is negatively related to imports. For production, tariff serves as the instrument of protection. For simplicity, therefore, it will be assumed that other factors affecting supply response are favourable such that a positive relationship can exist between the tariff and domestic output.

The above relationships are specified as:

Md = Md (Y, RER, Tariff) (1)

and

Yd = Yd (Y, RER, Tariff). (2)

Generally, for the estimations, let:

AOC = agricultural output

RTF = real tariff, such that

i

i

RTF

AOC

⎡ ⎤⎢ ⎥⎣ ⎦

= real tariff rate for each crop

RMT = real import

i

i

RMP

RTF

⎡ ⎤⎢⎣ ⎦

⎥ = implicit import value for each crop

REX = the real exchange rate

RGDP = real GDP.

The specific crop export, import or domestic output response function will be given by:

i ii

i i

RTF RMTAOC [REX ] [RGDP ] .

AOC RTF

⎛ ⎞⎡ ⎤ ⎡ ⎤= + + +⎜ ⎢ ⎥ ⎢ ⎥⎜ ⎣ ⎦ ⎣ ⎦⎝ ⎠

i i ⎟⎟ (3)

To formalise the response function, log-linearise Equation (3):

0 1 2 3

4 5

[ ]

[ ] .

i iit it it it it i

i i

it i it it

RTF RMTLogAOC Log Log Log REX

AOC RTF

Log RGDP Log

α α α α

α α ν

⎡ ⎤ ⎡ ⎤= + + +⎢ ⎥ ⎢ ⎥

⎣ ⎦ ⎣ ⎦+ + +

(4)

To provide scenario analysis and impact simulation of CET and EPA tariffs, we have:

i iit 0it 1i 2i

i t

3i i t 4i i t

RTF RMT*LogAOC * * Log * Log

AOC RTF

Log[REX ] * Log[RGDP ] .

i t

⎡ ⎤ ⎡= α + α + α

⎤⎢ ⎥ ⎢ ⎥⎣ ⎦ ⎣

+ α + α⎦ (5)

138 C. Agu, A.I. Achike and M.O. Oduh

Equation (5) is the estimated version of Equation (6):

ei i

0it 1i 2iiti t

3i i t 4i i t

RTF RMT*LogAOC * * Log * Log

AOC RTF

* Log[REX ] * Log[RGDP ]

i t

⎡ ⎤ ⎡= λ α + λ α + λ α

⎤⎢ ⎥ ⎢ ⎥⎣ ⎦ ⎣

+ λα + λ α⎦ (6)

where λ is a constant such that (0 ≤ λ ≤ 20) and * eitLogAOC is the expected simulated

impact of CET on specific crop i using the CET (0, 5, 10, 20) tariff rate.

Data for analyses were obtained from the Food and Agriculture Organization (FAO) Annual Abstract of Statistics and the Central Bank of Nigeria Annual Report and Statement of Accounts.

4 Major findings

4.1 Import response

To evaluate the impact of the CET and EPA on tariff, two models were estimated. The first is an aggregate imports equation incorporating the tariff, real exchange rate and income as stated in earlier sections. The tables below summarise the elasticity of the imports: Table 4 for aggregate imports and Table 5 for agricultural imports (all equations are log-linear and estimated in the first difference). In both equations, the impact of the tariff is unbiasedly negative.

Table 4 Aggregate imports

Variable Elasticity

Tariff –0.87

Income 1.91

Real exchange rate 0.41

Table 5 Agricultural imports

Variable Elasticity

Tariff –0.74

Real exchange rate –0.34

Income/Output 0.89

The coefficient of elasticity indicated in both tables shows increases of between 0.74% (for agricultural imports) and 0.87% (for aggregate imports) for unit reductions in tariff rates. This signals the possibility of huge increases in aggregate and agricultural imports in the event of the implementation of the CET and EPA. For the CET, given that the rates are graduated, the increase in imports arising from full-scale application would be smaller than that arising on account of the implementation of the ACP–EU EPA.

Economic partnership agreements, common external tariff and prospects 139

4.2 Aggregate agricultural production, the CET and the EPA

Estimating the impact of the tariff reductions on the domestic production of agriculture was not as straightforward as that of aggregate imports. There are a number of offsetting considerations, one of which is the observed weak impact of tariff on agricultural production relative to its imports and/or aggregate imports. This, in the view of the authors, stems from some important features of both the model and the Nigerian economy that are worth considering.

4.3 EPA and the production of selected agricultural commodities

Our partial equilibrium models relate the production of the selected commodities – rice, sorghum and cassava – to changes in tariff rates. As explained under the methodology, implicit tariff values were used while projections were made to evaluate the impact of reducing tariff on agricultural products to zero (the most likely option under the EPA). The estimations showed that tariff has a significant impact in determining the production levels of several agricultural products with the exception of cassava, where the coefficient of tariff was not very significant. From the estimation results, both rice and sorghum react significantly to changes in tariff rates with elasticities of 19% and 24%, respectively. These were also statistically very significant in both cases. However, the reaction of cassava is much smaller with an elasticity of 6%,which was not very significant at the 5% level.

As expected, the time lag of the impact of tariff was over a year for all three products. There were minor variations between the products but generally the time lag ranged from two to four years.2 For rice, tariff changes take approximately two years to reflect on production, while for cassava and sorghum, it takes four years before necessary changes in supply arising from tariff changes are made.

Table 6 shows simulated changes in the production of the selected agricultural products. All simulations assume a tariff reduction of up to zero, the most likely scenario under an EPA. Simulations using an average CET tariff rate of 11.67% yield less significant changes than the ones in the EPA, but potentially, the impact of the EPA would overshadow that of the CET as the former implies a tariff reduction to zero for affected products.

Table 6 Hypothetical production losses due to a reduction in tariff arising from the EPA and CET (values in millions of metric tonnes except for Columns 5 and 7)

Column 1 Column 2 Column 3 Column 4 Column 5 Column 6 Column 7

Crop Baseline

production Production at

0% tariff

Difference in production

(0% less baseline)

Total difference/

baseline (%)

EPA difference

(Mt)

EPA difference/

baseline (%)

Rice 1 614 985.5 1 573 458.5 –41 527.1 –3.21 –23 587.4 –1.83

Cassava 18 072 193.0 17 786 810.0 –285 383.4 –1.33 –162 097.8 –0.76

Sorghum 4 610 750.0 4 370 207.5 –240 542.6 –4.74 –136 628.2 –2.69

140 C. Agu, A.I. Achike and M.O. Oduh

Imports from the EU 15 constitute 32.8% of Nigeria’s total imports, and 17.7% of the total imports are agricultural. At the same time, 24% of the total imports into Nigeria are unaccounted for by the International Trade Statistics (ITS) data and generally represent imports from other EU (besides the EU 15) and ECOWAS member countries. Thus, the share of the total imports to be affected by the EPA and CET (taking away contributions by other major trading partners) is 56.8%. Calculations on the loss in production from the imposition of the EPA and the removal of tariffs on major products from the EU and other ECOWAS countries will be obtained under the assumption that this ratio remains constant in the near future. Of course, this is a very implausible assumption to make. With the removal of tariffs, many supply-driven markets will be created for EU exports into West Africa. Market creation and diversion will ensure an increase in the share of total imports from the EU and other West African countries. But these are second-level impacts and cannot be captured by our partial equilibrium analyses.

We present a hypothetical projection of losses in agricultural output given the elasticities from the model. Column 2 of the table shows projections based on the estimates from the models (termed ‘the baseline estimates’). This column shows what production should be if our equation holds. These figures do not significantly differ from the actual production for the base year (2004). In Column 3, the equations project the level of aggregate production with the reduction to zero of tariff rates on selected agricultural products. All other variables are held constant and only tariff rates are allowed to vary here. Column 4 shows the difference between Column 2 and Column 3. In other words, it is the size of the difference that arises on account of tariff reduction to zero. The share of this difference to the baseline production is taken in Column 5. Now, the EPA will not affect all products from all countries alike, but only products from the EU and ECOWAS member countries. Currently, the share of the EU, ECOWAS and other allied countries in the total imports into Nigeria is 56.8% as already mentioned. Thus, in Columns 6 and 7, the share of the total fall in production owing to the introduction of the EPA is taken as the product of the share of trade with the EU and the total difference in output. The reduction in production arising from the implementation of the EPA is smaller than the reduction in total production arising from a blanket reduction of tariff on all products to zero, as not all imports are from the EU and ECOWAS countries alone.

As indicated in the table, there is a general fall in output for all the products on account of the reduction in tariff. This stems mainly from the reduced market share that domestic producers are likely to face in the event of a reduction in tariff. The magnitude of loss again differs among products. The highest loss in output for any product occurred for sorghum, where implementation of zero tariff leads to a 4.74% (almost 5%) reduction in total output. The application of the EPA yields a 2.7% loss in output on the average. Closely following is rice, for which absolute loss in productivity was 3.21% of output in the absolute sense and 1.83% loss in output following the implementation of the EPA. The fall in output was least for cassava, for which aggregate loss was less than 2% and 1% for zero tariff and the application of the EPA, respectively. This, however, may not be unconnected with the fact that, cassava is the least traded among the three commodities. Thus, it is less susceptible to the ups and downs in production arising from trade policy changes than other commodities.

At this point, it would be helpful to stress that the above analysis assumes a number of potentially relevant factors that affect the agricultural output constant. For example, the effects on output of increasing imports arising from positive import elasticities are

Economic partnership agreements, common external tariff and prospects 141

not taken into account. Import elasticities would affect output in two ways: first by its own changes (if it alters in absolute terms over the next years owing to changes in taste, income, etc.) and second by changes in aggregate imports arising from positive import elasticities. If changes in import elasticities are positive, this would mean greater tendencies to substitute local production with imports. In addition, even with constant import elasticities, reduced tariff rates imply more imports, which puts the domestic producer in greater jeopardy. Also, the analysis assumed the EU/ECOWAS trade share to be constant for the time being. This is clearly not likely over time. The removal of tariffs on EU imports would necessarily lead, through trade effects, to a higher share of total Nigerian trade with the EU.

5 Conclusion: going forward with the EPA and CET

The structure of agricultural production in Nigeria is such that the bulk of producers are small scale. As seen from the analyses, the introduction of the EPA would likely lead to losses in output as well as an influx of imports (mostly from less costly sources). This is consistent with the findings of Busse et al. (2004), Soludo et al. (2003) and Karingi et al. (2005) in other sectors of the Nigerian economy as well as across other low-income countries participating in the EPA. While the aggregate trend in losses has been x-rayed in the section above, the impact of the introduction for micro agents involved in agricultural production will vary highly and could be absolute (i.e., many could be so affected that the total income would be wiped out) in some instances.

Given the structure of the Nigerian economy, agricultural production and trade are very important, at least in the immediate scenario. However, policy attention to improvements in these areas is still inadequate. Currently, trade policy does not seem to provide the necessary levers for agricultural production and trade. There is so much inconsistency and lack of focus on what trade policy should do to facilitate growth in agricultural production and trade as well as how it should be done. In the midst of this confusion, the government goes ahead with negotiations and the implementation of regional trade agreements and EPAs with countries in the region and with the EU, thereby committing itself to further reducing protection to the sector.

Findings from the analyses show that imports – whether aggregate or agricultural – are sensitive to tariff changes. In addition, our estimations and simulations indicate reductions in output for all three products in the study. With poor support for domestic production, lowering tariffs implies immediate substitution of domestic production with imports. Thus, without providing support for increased productivity – preferably by facilitating access to agricultural inputs and by providing a backstop for agricultural prices so as to ensure steady income for producers – adopting the UEMOA CET or EPA, which implies reduced tariffs for all third parties and outright removal of tariffs on imports from the West African subregion and the EU, would mean increased unemployment for farmers and reduced income for those who remain in farming.

Agricultural exports are currently too miniscule. But prospects for improvement are high especially with the presidential initiative on a number of agricultural products. However, it might not be helpful to exaggerate the possibilities from the initiative. Domestic demand for these products is also not small. But in the face of unhindered adoption of both the CET and EPA, these potentials can be hindered. Currently,

142 C. Agu, A.I. Achike and M.O. Oduh

protection for certain agricultural commodities is relatively high, but how consistent such policies would be and what mechanisms are put in place to ‘wean’ domestic producers from such protection at the earliest possible dates are issues for careful consideration. Of the products under study here, for example, cassava is completely prohibited from being imported. Rice importation attracts a tariff of about 150%, while sorghum has not been imported into the country since 2000. Momentarily, these are helpful measures, but policy consistency is important. More so, such policies have to be supported by a programme for farm support to ensure continuation of technological application to production and processing, which will enhance the competitiveness of such products in the global market.

References

Bhalla, S.S. (2002) ‘Trade, growth and poverty: re-examining the linkages’, Paper prepared for the Fourth Asia Development Forum, Seoul, Korea.

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Economic partnership agreements, common external tariff and prospects 143

Notes 1 The presidential initiative is an ongoing programme of intensification of research, funding and

production on selected agricultural products. The idea is for a more coordinated approach and policy attention to the production of these items given their strategic place in food security, employment and sustainable livelihood in the country.

2 The Cobweb theory of the impact of changes in a variable on the production of dependent variables was best illustrated with agricultural products. For many macroeconomic variables affecting the production of certain commodities, changes in the variable do not immediately reflect in changes in the production level of the commodity. For agricultural activities particularly, there is a gap between input decisions and output. Thus, input decisions incorporating changes in trade policy variables only show up during harvests, which may range from one year to many years.