Price and Income Elasticities of Palm Kernels Export Supply in Nigeria

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ABSTRACT In Nigeria, the Federal Government is concerned about revitalising the agricultural export sector as part of attempts to diversify the nation's export base from crude oil, in line with its Economic Reform Agenda. This paper estimates price and income elasticities of palm kernels exports with a view to ascertaining whether it is an appropriate policy to encourage the exports of palm kernels, in view of the changing terms of trade in favour of semi-finished products from palm kernels. The data spans 34 years; from 1970 to 2003, and were sourced from the Central Bank of Nigeria (CBN), Food and Agriculture Organisation (FAO) of the United Nations and the International Financial Statistics (IFS) of the International Monetary Fund (IMF). The analysis lends itself to co-integration and error correction techniques, considering current trends in time-series modelling. Results show that the error correction mechanism indicates a feedback of about 193.5% of previous year's disequilibrium from the long-run elasticity of real producer price of palm kernels and foreign income. Clearly, this signals an overreaction of exports supply since disequilibrium adjustment is more than 100% within one year. In the long run, the real producer price and foreign income have a significant but negative effect on palm kernels exports. By the same token, in the short run, the real producer price has significant elastic, but negative effect on export supply, while foreign income elasticity is negative but not significant in explaining export supply in the short run. These results are informative and indicate that policy actions directed at boosting exports of palm kernels would be counter-productive. Instead, emphasis should be placed on expanding domestic industrial utilisation since the semi-finished products, like palm kernel Olein, Palm kernel Stearin, Palm kernel Cake (expeller), etc., which are favoured by importing nations, can be exported to earn more foreign exchange for country.