The Impact of Exchange Rate on Export of Agricultural Product in Nigeria

1.0 Introduction

1.1 Background of Study

The exchange rate has long been recognized as a critical determinant of trade performance, particularly in developing economies like Nigeria. The exchange rate, which is the price of one currency in terms of another, influences the competitiveness of a country's exports and imports. For Nigeria, a country heavily reliant on exports, especially agricultural products, fluctuations in exchange rates can have profound effects on its trade balance and overall economic stability. Agriculture, which has historically been a cornerstone of Nigeria's economy, faces varying degrees of impact from exchange rate fluctuations. Products like cocoa, palm oil, cassava, and groundnuts form a substantial part of Nigeria's non-oil exports, and their export performance is closely linked to the strength of the Nigerian Naira relative to foreign currencies.

Over the years, Nigeria's exchange rate has experienced significant volatility, driven largely by shifts in global oil prices, government fiscal policies, and macroeconomic factors such as inflation and interest rates. This volatility poses challenges for agricultural exporters who rely on stable pricing and market access for long-term planning. The relationship between exchange rate movements and agricultural exports has become even more significant as the Nigerian government seeks to diversify the economy and reduce its dependence on crude oil revenues.

Several studies have shown that exchange rate fluctuations can both positively and negatively influence agricultural export performance. A depreciation of the Naira can make Nigerian agricultural products cheaper for foreign buyers, potentially boosting exports in the short term. However, this depreciation may also lead to higher import costs for agricultural inputs, such as fertilizers, seeds, and machinery, which can affect the profitability of agricultural businesses.

The exchange rate refers to the value of one currency in relation to another, indicating how much of a foreign currency is required to purchase one unit of a domestic currency. In the context of Nigeria, the exchange rate represents how much the Nigerian Naira is worth against other major currencies like the US Dollar, Euro, or British Pound (Onoh, 2022). A fluctuating exchange rate can significantly influence the price competitiveness of agricultural exports, affecting demand in international markets.

The impact of exchange rates on the export of agricultural products in Nigeria is a critical issue that has significant implications for the country's economic performance and trade balance. Exchange rates, which represent the value of a country's currency relative to others, play a pivotal role in determining the competitiveness of a nation's exports. In the case of Nigeria, agriculture has been a major sector contributing to the national economy, with products such as cocoa, palm oil, and cassava being key export commodities. However, fluctuations in exchange rates can either enhance or undermine the profitability of these exports, influencing farmers' income, the viability of agricultural businesses, and the overall economic growth. The relationship between exchange rates and agricultural exports is complex, as it is influenced by several macroeconomic factors, including inflation, interest rates, government policies, and global market trends. In Nigeria, where the currency has experienced volatility in recent years due to fluctuating oil prices and economic instability, the impact on agricultural export performance has become more pronounced. Therefore, in Nigeria where the research was carried out, the activities that was conducted is to know the impact of exchange rate on export of agricultural product.

1.2 Statement of Problems

Investigation revealed that exchange rate instability affects the pricing structure of agricultural exports, making Nigerian products less competitive in the international market. This issue is compounded by the fact that many of Nigeria's key agricultural products, such as cocoa, palm oil, and rubber, are exported in a global market where the value of the Naira often fails to keep pace with international currencies like the US dollar or the Euro. As a result, Nigerian exporters face a double challenge: the high cost of production due to exchange rate depreciation and the reduced demand for their products as a result of inflated prices.

In addition, Nigeria's over-dependence on oil revenues has led to frequent exchange rate volatility, with the country's foreign exchange reserves often being impacted by fluctuations in global oil prices. The absence of a robust policy framework that addresses exchange rate volatility has created an environment of uncertainty for exporters. Many agricultural exporters struggle to predict the cost of their goods and the profitability of their businesses, which ultimately discourages investment in the agricultural export sector.

Furthermore, Nigeria's failure to diversify its foreign exchange sources has exacerbated the challenge. A large portion of the foreign exchange needed for agricultural exports comes from oil revenues, which remain subject to market instability. It is against the backdrop that this study seeks to address these problems by evaluating the impact of exchange rate on export of agricultural product in Nigeria.

1.3 Aim and Objectives of Study

The aim of the study is to examine the impact of exchange rate fluctuations on the export of agricultural products in Nigeria. In achieving this aim, the following specific objectives were laid out as follows:

1. To examine the role of government policies in stabilizing the exchange rate and their effectiveness in supporting the agricultural export sector.
2. To evaluate how exchange rate volatility affects the pricing structure of agricultural exports from Nigeria in international markets.
3. To assess the relationship between exchange rate fluctuations and the export volume of key agricultural products in Nigeria.
4. To explore the impact of exchange rate changes on the cost of production for Nigerian farmers and exporters.
5. To analyze the challenges faced by Nigerian agricultural exporters due to exchange rate instability.
6. To recommend strategies that can help Nigerian agricultural exporters cope with exchange rate fluctuations and enhance the competitiveness of their products in international markets.

1.4 Research Questions

The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:

• Does exchange rate volatility affect the pricing structure of Nigerian agricultural exports in international markets?
• What is the relationship between exchange rate fluctuations and the export volume of key agricultural products in Nigeria?
• What are the challenges faced by Nigerian agricultural exporters due to exchange rate instability?
• How do changes in the exchange rate impact the cost of production for Nigerian farmers and exporters?
• What role do government policies play in stabilizing the exchange rate, and how effective are they in supporting the agricultural export sector?
• What strategies can Nigerian agricultural exporters adopt to cope with exchange rate fluctuations and enhance the competitiveness of their products in international markets?

1.5 Research Hypothesis

Based on the stated objectives of the study, the following hypotheses will be tested to examine the impact of exchange rate on the export of agricultural products in Nigeria:

• H₀1: There is no significant relationship between exchange rate fluctuations and the volume of agricultural exports in Nigeria.
• H₀2: Fluctuations in the exchange rate significantly affect the cost of production for Nigerian agricultural exporters.
• H₀3: Exchange rate volatility has a significant effect on the pricing structure of Nigerian agricultural exports in international markets.

1.6 Significance of Study

The findings of this research will contribute to the understanding of the challenges that agricultural exporters face, particularly in terms of pricing, cost of production, and overall profitability. Also, policymakers will benefit from the study's findings as it will inform decisions on stabilizing exchange rates and implementing measures to protect the agricultural export sector.

The research will also be of great importance to agricultural producers and exporters, as it will offer recommendations on how to mitigate the risks posed by exchange rate volatility. Moreover, academic researchers and students will find the study useful as it will add to the existing body of literature on exchange rates and international trade.

Lastly, the findings will assist businesses in formulating strategies to optimize their export activities and minimize the adverse effects of exchange rate fluctuations.

1.7 Scope of Study

The scope of the research is focused on the impact of exchange rate fluctuations on the export of agricultural products in Nigeria, specifically examining the period from 2010 to 2023. The study will cover various agricultural products such as cocoa, sesame seeds, rubber, and other cash crops commonly exported from Nigeria.

1.8 Limitations of the Study

During the course of this study, many things militated against its completion, some of which are:

1. Time Constraint: The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.
2. Financial Constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
3. Initial Cooperation Delay from Respondents: A particular limitation of this work came as a result of the respondent refusal to offer their cooperation at the initial time they were contacted. This contributed in making the success of this research study difficult.

1.9 Definition of Terms

Exchange Rate:

The exchange rate refers to the value of one currency in relation to another, indicating how much of a foreign currency is required to purchase one unit of a domestic currency. In the context of Nigeria, the exchange rate represents how much the Nigerian Naira is worth against other major currencies like the US Dollar, Euro, or British Pound (Onoh, 2022). A fluctuating exchange rate can significantly influence the price competitiveness of agricultural exports, affecting demand in international markets.

Agricultural Products:

Agricultural products encompass all goods that are produced through farming and agriculture. This includes crops, livestock, and other raw materials such as fruits, vegetables, grains, cocoa, and cotton that are grown and harvested for consumption, trade, and industrial use (Ajayi & Olawumi, 2020). In Nigeria, agricultural exports form a critical part of the economy, with the performance of these exports heavily influenced by factors like the exchange rate.

Export:

Export refers to the process of sending goods or services produced in one country to another for sale or trade (Ogunniyi & Olagunju, 2021). In this study, export specifically refers to the transportation of agricultural products from Nigeria to foreign markets. The exchange rate affects the cost and competitiveness of these products in the global market, influencing Nigeria's export volume and revenue.

Exchange Rate Volatility:

Exchange rate volatility describes the degree to which a currency's value fluctuates over time. High volatility in the exchange rate can create uncertainties for exporters, making it difficult to predict revenues or costs (Adeniran, 2023). Such volatility often impacts the pricing of agricultural products, influencing Nigeria's export performance.