Exchange Rate Depreciation and Food Prices in Nigeria

Abstract

Prompted by the consistent rise in food prices that seems to follow the depreciation of the exchange rate, despite a significant portion of the nation's food being produced locally, this study examines the effects of exchange rate fluctuations on food prices in Nigeria over the period 2000-2024. The Autoregressive Distributed Lag (ARDL) approach was used to analyze the secondary data used for the study which were sourced from the World Bank Development Indicators, the National Bureau of Statistics, and the Central Bank of Nigeria Statistical Bulletin. The results indicate a significant and positive relationship between exchange rates and food prices in Nigeria, both in the short and long terms. Additionally, while trade openness exhibits a positive and statistically significant influence on food prices in the short term, its long-term effect appears to be significant. On the other hand, the interest rate shows a negative but statistically insignificant correlation with food prices in the short term, with no substantial long-term impact either. These findings highlight the necessity for long-term strategies aimed at stabilizing the exchange rate, managing trade liberalization effectively, and handling interest rates to lessen their detrimental effects on food prices. The study recommends the government to focus on strong monetary policies that reinforce the Naira, implement targeted tariffs or subsidies on key food imports, and offer low interest loans to farmers to boost local agricultural production.