Khadijat Busola Amolegbe is a lecturer at the University of Ilorin, Nigeria. She was a visiting fellow at Cornell University as part of the Structural Transformation of African Agriculture and Rural Spaces (STAARS) program, and worked with Joanna Upton, Liz Bageant, and Sylvia Blom. Her research interests include food security, poverty, inequality, labour market participation, and climate change.
An abundance of studies in development explore the association between food price volatility and household food security (dating back, for example, to Barrett & Dorosh (1996)). This issue continues to be pertinent: to date, households in sub-Saharan Africa experience variations in prices and food security due to market failures, climate change, political instability, and the presence of weak institutions. Policy aimed at curbing the effects of seasonality have often focused on the predictable price changes across the year, and on providing households with safety nets designed accordingly, in order to smooth consumption. Seasonality is just one dimension of price volatility, however. Little work has been done to understand the effects of unexpected price volatility on food insecurity.
Literature shows that the consequences of seasonal food price changes depend on household expenditures, income, and household production. For example, Dostie et al. (2002) find that the consumption expenditure and choices of Malagasy households vary with seasons, with household calorie intake declining during the lean season. Arndt et al. (2008) note that households’ ability to smooth out the effects of price volatility depends on household production: whether they are net seller or buyers. On the consumption side, consumers are worse off if prices go up because they buy at high prices. On the income side, prices have a direct impact on profits because net sellers can benefit from selling at high prices. However, the net seller and buyer status of the household can also itself depend on the season.
The predictability of a price change has been found to be important. Deaton (1991) and Sahn et al. (1989) note that households are better able to smooth out consumption and income if seasonal price patterns are known and can be predicted. Households may also employ diverse coping strategies, including insurance, diversification, intertemporal savings and substitution across foods. Difficulty in predicting the dynamics of food price changes create risks and uncertainty which may influence households’ food security status. Hence, the relationship between unpredictable price changes and household food security is unclear.
Exploring the link between food prices and household food security
In light of this research gap, my Cornell-based co-authors Joanna Upton, Liz Bageant, Sylvia Blom, and I examined the relationship between price changes and household food security status, focusing on unexpected price changes of maize, local rice, and imported rice in Nigeria. This effect might be dampened by the fact that these food items can be substituted with other food items such as sorghum and millet. Therefore, we controlled for the price effects of the substitute food items. We expected that net sellers of these food items would be less negatively affected by price increases than net-buyers, and assumed that households are more negatively affected by unexpected than expected price changes.
We combined the real values of historical monthly prices of the food items and substitutes for each state in Nigeria with comprehensive household panel data. The semi-annual (post-planting and post-harvest) data collection in the Nigeria LSMS-ISA data allows us to control for seasonal variation. We construct the annual net-sales value by using the extensive information on household consumption, crop production, and sales. The survey and historical food price data also cover the period before and after the peak of the domestic food price inflation in Nigeria which occurred in 2014.
We estimate the relationship between unexpected change in the price of maize and each of several household food security outcomes, including the Household Dietary Diversity Score (HDDS), a measure of dietary diversity and hence proxy for nutritional quality, and the share of food in total household expenditure. We disentangle the food price variation into two components – expected (seasonal) and unexpected.
Our findings and recommendations
Our results suggest that a rise in the price of maize has no significant effects on Nigerian household food security status. However, we find evidence that a sudden increase in the price of imported rice drives an increase in the price of local rice, as households substitute toward local rice thereby driving up the price. This increase in price of local rice may also be linked to low and irregular domestic production and high demand; unlike maize, rice is mainly produced during the rainy season, and farmers lack access to basic storage and irrigation facilities that could facilitate year-round supply. This cross-commodity substitution (and income) effect leads to ambiguous – or even positive, depending on how it is measured – associations between local rice price shocks and household food security.
While there is a long history of government investment intended to boost household food security and agricultural output, our findings emphasize the continued need to assure stability and productivity in the agricultural sector. Governments should increase investment in domestic food production, as well as improve market infrastructure and efficient storage technology, in order to buffer households against unexpected food price increases. Maintaining national food storage programs could also serve as a safety net for managing unexpected food price fluctuation.
