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A test of whether millet acreage in Niger is determined by official or private market prices

01 Dec 1990-Agricultural Economics (Elsevier B.V.)-Vol. 4, pp 287-296

AbstractNiger has two separate marketing channels for grain: one is the official system operated by the government; the other is a parallel channel of private traders. Researchers or policy-makers wanting to study effects of price policies on producers are faced with two sets of prices. This paper seeks to answer the question, which prices matter? Non-nested hypothesis tests are conducted for millet-acreage response equations. The results show that prices from the larger private market are the prices that matter.

Topics: Market price (54%)

Summary (2 min read)

Introduction

  • Niger has an official grain market operated by the Office de Produits Vivriers du Niger (OPVN) and a parallel grain-marketing channel of private traders.
  • This network of private traders controls a major share of the total volume of grains marketed in Niger.
  • Maina (1982) , in an econometric estimation of production responses, asserted that Nigerien farmers do not respond to official market prices.
  • These hypotheses are tested using non-nested hypotheses tests.

Theoretical model

  • Millet is the major crop in Niger, accounting for 85% of the total area cultivated in 1983.
  • The other crops-sorghum, cowpeas and peanuts-represent a small fraction of total production.
  • Sorghum and cowpea acreage were 10% and 8% respectively of total acreage cultivated in 1983.
  • Only millet acreage equations are considered in this study, since millet is the most widely cultivated crop.
  • The production possibility set for the farm can be written following Varian (1982) as: Y(X) = [X, Y: F(X) ~ Y; X 1 = XtJ (1) where Y(X) represents the restricted production possibility set with a fixed amount of land available for production.

and

  • The derived production function in (2) will display decreasing returns to scale since the amount of one input (land) is limited (Varian, 1982, p. 20) .
  • Elliot Berg Associates (1983) asserted that 'the structural characteristics of Niger's markets give a strong presumption of competitiveness.
  • Since the authors are investigating acreage decisions, (3) is the relevant portion of the farmer's maximization problem.
  • No satisfactory price for labor could be obtained, and so price of labor could not be included.

Empirical model specifications and non-nested hypothesis testing procedures:

  • Based on the previous theoretical considerations, the following alternative empirical model specifications are hypothesized for the millet acreage demand equations.
  • Let the first hypothesis (H 1 ) be that official prices are the relevant prices in millet production.
  • The two tests are used in this study because of the possible fragility of results to alternative test procedures.
  • Thus, even though the private-market prices shown in Table 1 are substantially larger than official prices, official prices could still be higher during the seasonal low following harvest or in remote areas.

Empirical model results and discussion

  • Use of the private market gives estimates of the structural parameters consistent with theoretical expectations (Table 2 ).
  • In the official price acreage equation, neither coefficient on the lagged official prices is statistically significant.
  • Based on the correct signs on the coefficients of the explanatory variables,.
  • The elasticity of millet acreage demand to market prices is important for policy analyses in Niger.
  • Long-run acreage elasticity estimates from Maina (1982) (official price elasticities) were 0.03 for millet prices.

Summary and conclusions

  • This study was undertaken to determine whether Nigerian millet producers respond to private market prices and/or official market prices.
  • Alternative specifications of millet acreage equations were hypothesized and nonnested hypothesis test procedures were used to test the hypotheses.
  • The model with official market prices was rejected, and the null hypothesis that private market prices were sufficient for explaining acreage demand could not be rejected.
  • The private market specification also gave results closer to theoretical expectations than did the official market specification.
  • Farmers respond to private market prices rather than official market prices.

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Agricultural Economics, 4 (1990)
287-296
Elsevier Science Publishers
B.
V., Amsterdam
A test
of
whether millet acreage in Niger is
determined
by
official or private market prices
B.
Wade Brorsen
1
and Akinwumi A. Adesina
2
1
Department
of
Agricultural Economics, Purdue University,
West Lafayette,
IN
47907 (U.S.A.)
2
International Crops Research Institute
for
the Semi-Arid Tropics (ICRISAT),
B.P.
320, Bamake (Mali)
(Accepted
23
October 1989)
ABSTRACT
287
Brorsen, B.W. and Adesina,
A.A.,
1990. A test
of
whether millet acreage in Niger
is
deter-
mined by official
or
private market prices. Agric. Econ.,
4:
287-296.
Niger has two separate marketing channels for grain: one
is
the official system operated
by the government; the other
is
a parallel channel
of
private traders. Researchers
or
policy-
makers wanting to study effects
of
price policies on producers are faced with two sets
of
prices. This paper seeks to answer the question, which prices matter? Non-nested hypothesis
tests are conducted for millet-acreage response equations. The results show
that
prices from
the larger private market are the prices
that
matter.
Introduction
Niger has an official grain market operated by the Office de Produits
Vivriers du Niger
(OPVN)
and
a parallel grain-marketing channel
of
private
traders. The
OPVN,
set
up
in 1970 as the officially recognized grain-
marketing agency,
is
an
official monopoly for the marketing
of
grains in
Niger (Enger, 1979; Cullen
and
Waldstein, 1983; Scott et al., 1983; Adesina,
1985). The activities
of
the
OPVN
include (a) setting uniform nationwide
producer prices, (b) setting uniform nationwide consumer prices,
and
(c)
balancing grain supplies between the six agricultural departments in Niger.
In
doing this, the
OPVN
subsidizes the transportation
of
grains from the
major
grain-production zones (Maradi
and
Zinder) to all parts
of
the coun-
try. The private grain-marketing channel, although not officially recogniz-
ed,
is
an
important
part
of
the marketing system. The government
of
Niger,
although aware
of
its existence, allows it to operate. This network
of
private
0169-5150/90/$03.50
©
1990-Elsevier
Science Publishers B.V.

288
traders controls a
major
share
of
the total volume
of
grains
marketed
in
Niger. Elliot Berg Associates (1983) estimated
that
the
OPVN
handles bet-
ween
150Jo
and
35%
of
the grain marketed in Niger.
Borsdorf
(1979)
estimated
that
the official market handles
15%
of
total grains marketed.
The reason for the low market share
of
the
OPVN
is
that
the
uniform
pro-
ducer prices are set lower
than
the corresponding prices
on
the
private
grain
markets (Cullen
and
Waldstein, 1983;
Proulx
et al., 1983; Elliot Berg
Associates,
1983; Adesina, 1985).
How
relevant are the
OPVN
prices
in
grain production? Opinions
of
researchers vary from that
of
non-relevance
to
scepticism. Borsdorf (1979) contends
that
grain production
is
not
respon-
sive to the official prices. Maina
(1982), in
an
econometric estimation
of
pro-
duction responses, asserted that Nigerien farmers do
not
respond
to
official
market prices. The study concluded
that
farmers grow crops
to
satisfy sub-
sistence requirements. However, Adesina
(1985), in a mathematical-
programming analysis
of
grain production, indicated
that
farmers
should
generate marketed surpluses, given
the
adoption
of
fertilizer technology.
The study indicated
that
private market prices should be
important
in
pro-
duction
and
marketing decisions. Maina (1982) estimated acreage responses
econometrically using only official producer prices, while Adesina
and
Brorsen (1987) estimated acreage response using private-market prices.
Although past research has argued for
or
against the relevant prices,
no
attempt
has been made to determine which prices affect acreage decisions.
The objective
of
this study is
to
test whether Nigerien millet farmers
respond
to
private market prices
and/or
official prices. These hypotheses
are
tested
using non-nested hypotheses tests. Given the different views
on
which prices
are relevant for producers, non-nested test procedures are
appropriate
in
testing for the relevant prices in grain
production
(Godfrey
and
Pesaran,
1983). Policy-makers in Niger need
information
about
the
relevant prices
in
grain-producers' decisions. Such information
can
be useful in designing of-
ficial pricing policies.
Theoretical model
Millet
is
the
major
crop in Niger, accounting for
85%
of
the
total
area
cultivated in 1983. The other
crops-
sorghum, cowpeas
and
peanuts-
repre-
sent a small fraction
of
total production. Sorghum and cowpea acreage were
10%
and
8%
respectively
of
total acreage cultivated in 1983. Peanuts have
become a minor crop.
Only millet acreage equations are considered in this
study, since millet
is
the most widely cultivated crop. Sorghum
is
grown
on
higher-quality land,
and
thus only cowpeas
and
millet compete for the
same
land.
Let
1j
U =
1,
. . . , n) represent the
output
of
the n crops produced
on

289
the farm,
and
Xjk
(k
= 1, . . . ,
K)
represent the quantity
of
input k used
in production
of
crop}.
The
fixed
amount
of
land available for production
is
.X
1
The assumption
of
a fixed quantity
of
land
is
appropriate for Niger,
where most
of
the land is sandy
and
the
amount
of
arable land
is
limited.
The
production
possibility set for the farm can be written following
Varian
(1982) as:
Y(X) = [X,
Y:
F(X)
~
Y;
X
1
= XtJ
(1)
where
Y(X)
represents
the
restricted production possibility set with a fixed
amount
of
land
available for production.
Following
Just
et al. (1983), p. 772), inputs are assumed
to
be allocatable
among
production
activities (i.e., inputs used in producing Y
1
do
not
affect
the
production
of
Y
2
).
Thus,
the
production technology derived
from
(1)
can be written as:
j =
1,
...
, n
and
(2)
n
xk
= j
~
t
xkj
k =
1,
...
, K
xt
=
xt
The
derived production function in (2) will display decreasing returns
to
scale since
the
amount
of
one
input
(land)
is
limited (Varian, 1982, p. 20).
Various researchers have argued
that
the grain-marketing system in Niger
satisfies
the
requirements
of
a competitive market (Kohler, 1977; Elliot Berg
Associates,
1983). Elliot Berg Associates (1983) asserted
that
'the
structural
characteristics
of
Niger's markets give a strong presumption
of
com-
petitiveness. There exist
many
buyers
and
sellers,
and
barriers
to
entry
are
few.' Therefore,
the
farmer can be viewed as a
profit
maximizer, operating
with perfectly elastic
output
and
input
markets. Let
Pj
U = 1,
...
, n)
represent crop prices
at
harvest. The farmer's decisiOn can
then
be
represented as:
n
Max
E
p.y.-
YXj=l
JJ
where
Ej;;;
1
PfYj
represents
the
total
revenue from all the crops produced,
and
Ek!
2
WkXk
represents
the
total
variable costs
of
production. The
firstorder conditions for this maximization problem yield
the
unconditional
output
supply
and
input
demand
equations:

290
j 1,
...
, n (3)
k = 2,
...
, K
j = 1,
...
, n
(4)
Equation
(3)
is
the
input
or
factor
demand
function,
while (4) is
the
supply
function. Since we are investigating acreage decisions,
(3)
is
the
relevant
por-
tion
of
the
farmer's
maximization
problem.
The
farmer decides
on
the
acreage
of
the
crops
to
cultivate, based
on
market
output
prices
and
factor
prices.
Equation
(3)
is
used
to
specify
the
acreage
demand
equation
for
millet.
The
question addressed
in
this
paper
is,
what
set
of
prices
are
relevant?
Alternative specifications
of
millet acreage
demand
equations
are
specified,
using official
and
private
market
output
prices.
The
major
inputs
in
grain
production
are
labor
and
fertilizer.
Labor
constraints
during
the
critical
weeding periods have been
found
to
limit millet
production
in
Niger
(Adesina, 1985).
No
satisfactory price
for
labor
could
be
obtained,
and
so
price
of
labor
could
not
be
included. Fertilizer is
important
in
grain
produc-
tion
(Reeser, 1980; Adesina, 1985). Soils in Niger
are
low
in
nitrogen
(N)
and
phosphorous
(P).
Most
fertilizer is applied as simple
superphosphate
(P)
or
urea
(N).
Jomini
(1989)
found
that
phosphorous
limits yields
when
rainfall
is
not
a constraint.
Therefore,
the
price
of
simple
superphosphate
is used as
the
price
of
fertilizer.
Empirical model specifications and non-nested hypothesis testing
procedures:
Based
on
the
previous theoretical considerations, the following
alternative
empirical model specifications are hypothesized
for
the millet acreage de-
mand
equations. These equations are estimated with
ordinary
least
squares:
AMt
(5)
AMt
b
0
+ b
1
PMPt_
1
+ b
2
PCPt_
1
+ b
3
FDt
+
ezt
(6)
where
AMt
is
the
acreage
of
millet harvested in
time
period t (1000 ha),
OMPt
official millet price
at
time t
(FCF
A/kg),
OCP
t official
cowpea
price
at
time
t
(FCF
A/kg),
PMP
t _
1
private
market
price
for
millet
at
time
t-
1,
(FCFA/kg),
PCPt_
1
private
market
price
for
cowpeas
at
time
t-1
(FCFA/kg),
and
FDt
official fertilizer price
at
time
t
(FCFA!kg
of
P
2
0
5
).
Equation
(5) specifies millet acreage as a
function
of
official
market
grain
prices (i.e.,
OPVN
prices),
and
fertilizer price. The alternative
model
specifies acreage as a function
of
private
market
output
prices,
and
fertilizer

291
price. Neither equation is a special case
of
the
other
and,
therefore, non-
nested testing procedures can be used (Pesaran,
1980; Davidson
and
MacKinnon, 1981; MacKinnon et al., 1983).
A number
of
statistics have been proposed to test non-nested hypothesis
tests (Cox, 1961, 1962; Pesaran, 1974;
Pesaran
and
Deaton, 1978; Davidson
and
MacKinnon, 1981; Godfrey
and
Pesaran, 1983). These tests include the
Cox
Non-Nested Test (Cox, 1961, 1962), the J-test (Davidson
and
MacKin-
non,
1981), the
orthodox
test
and
the Adjusted Cox Test (Godfrey
and
Pesaran, 1983). Non-nested tests allow rejecting
or
accepting
both
alter-
native model specifications. Let the first hypothesis (H
1
)
be
that
official
prices are the relevant prices in millet production. Let
the
second hypothesis
(H
2
)
be
that
private market prices are the relevant ones in production.
The orthodox test is
the
least powerful
of
the three tests.
For
the
J-test
procedure, the predicted values in equation (5)
and
equation (6) are obtain-
ed.
The
predicted values
from
these equations are denoted by
Amo
and
.Aml•
respectively.
To
perform the J-test:
Amo
is
included as
an
additional ex-
planatory variable in (6), while
Ami
is
included as
an
additional explanatory
variable in (5). A t-test
is
used
to
test the coefficients
on
Amo
and
Ami·
Suppose the coefficient
on
Ami
in the millet acreage equation specified
with official market prices
is
statistically significant, while the coefficient
on
Amo
in
the
alternate model is
not
significant. The conclusion will be
to
re-
ject
the
official price specification
and
fail
to
reject the private market price
specification (i.e., private market prices are the relevant prices in millet
acreage decisions).
In
this study,
the
two test procedures used are the J-test
and
the
Cox non-
nested test procedures.
Monte
Carlo studies have shown
that
the
J-test has
low power in small samples (Godfrey and Pesaran, 1983). The Cox non-
nested test may reject
more
often
than
it should in small samples. The two
tests are used in this study because
of
the
possible fragility
of
results
to
alter-
native test procedures.
The
data
for crop
area
and
private market
output
prices were obtained from
the
Niger Ministry
of
Rural Development Rap-
port
Annuel
Statistiques (1976, 1981, 1986)
and
the
FAO
Production Year-
books
(1970-1982).
The official market prices are from Elliot Berg
Associates (1983). The
data
for the retail price index used in deflating the
output
and
input prices were obtained from International Monetary
Fund
(IMP, 1988)
and
World Tables (World Bank 1976). Fertilizer prices are from
the
FAO
Fertilizer Yearbook (1978
-1986).
Exchange rates
to
convert some
of
the
fertilizer
data
to
the
Niger currency are from International Monetary
Fund
(IMP, 1988).
Data
from different sources are
not
perfectly consistent. This is especially
true
for the fertilizer price data.
To
aid later researchers in reproducing
the
results, the
data
used in the study are displayed in Table
1.
The private-

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Citations
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Dissertation
01 Jan 2010

20 citations


Cites background from "A test of whether millet acreage in..."

  • ...Brorsen and Adesina (1990) reported that Niger has two separate marketing channels for grain....

    [...]


Journal ArticleDOI
Abstract: Price response of maize acreage in Benin was estimated with a particular emphasis on whether the prices were producer prices in rural markets or retail prices in urban markets. A second difference between prices was examined through a price adjustment model which takes into account the distortions caused by local units on maize price when one is concerned with the pricing system in the private marketing network relating rural and urban areas. Urban market price specification appeared to be the most relevant statistically in explaining acreage decisions in Mono province. Price elasticity of acreage was 0.445 in this area while its value, around 0.10, was not significant for Benin as a whole. The use of adjusted urban prices enabled an increase of 5.6% of the elasticity in Mono province. The urban vs. rural difference was apparent, but the coefficients of the price variable were not significant in equations with rural prices. The latter were not as reliable as those of the urban market of Dantokpa (in Cotonou city) collected by the Institute of Statistics (INSAE) and the GTZ project.

4 citations


Cites background from "A test of whether millet acreage in..."

  • ...Therefore, instead of testing whether maize (the cereal widely cultivated and marketed in Benin) acreage is determined by official or private market prices as was recently done for millet in Niger (Brorsen and Adesina, 1990), this paper examines maize supply response under differential prices in the private system....

    [...]


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Abstract: SUMMARY It is required to test a composite null hypothesis. High power is desired against a composite alternative hypothesis that is not in the same parametric family as the null hypothesis. In an earlier paper a modification of the Neyman-Pearson maximum-likelihood ratio test was suggested for this problem. The present paper gives some general comments on the formulation of the problem, a general large-sample form for the test, and, finally, a number of examples.

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