EFFECT OF INFLATION ON FOOD PRODUCTION (A CASE STUDY OF MAMUDA FOODS COMPANY KANO STATE)

CHAPTER ONE

INTRODUCTION

 

1.1   Background to the Study

 

Inflation is often defined as the persistent increase in the general price level of goods and services in the economy within a given time period. In such instances, the phenomenon unequivocally results in the loss of currency value in the sense that the entire currency unit has a purchasing power of fewer goods and services than it was previously (Ali and Asfaw, 2023). There are several ways of measuring inflation including the Consumer Price Index (CPI) and the Producer Price Index (PPI) which depict specific groups of price changes per unit of certain categories over a specified duration (Blanchard, 2021).

 

Economists distinguish between several types of inflation, including demand- pull) inflation caused by the increase in demand, cost- push inflation triggered by stimulate rise in cost of goods supplied and price manipulation due to “built-in” systematic or wage- price inflation which exists despite the external equilibrium. For instance, in cases where the demand for goods and services is higher than the supply, demand-pull inflation occurs. Cost- push inflation is experienced when production costs increase thereby leading to limited overall good and service supply. Built-in inflation also referred to as wage- price inflation occurs whenever businesses increase their goods prices in effort to sustain the profit margin as a result of wage rates increase (Samuelson and Nordhaus, 2010). Inflation is a serious threat to economic tranquility affecting the general level of interest rates, level of investment in economy and overall growth of the economy. By modifying interest rates and other financial instruments to preserve price stability, central banks frequently seek to manage inflation through monetary policy (Ebem, 2024).

 

Nigeria's inflation rates have fluctuated significantly over the last few decades, driven by both domestic and international economic conditions. In the late 1990s to the early 2000s, for example, the economic history of Nigeria was characterized by high inflation rate often exceeding %20 per annum, largely fuelled by structural constraints, policy disarray and external shocks. Between the mid-2000s, economic policies and structural reforms that were put into place somewhat controlled elevated inflationary pressures, bringing the rate down to a range of 10-12% on average annually. However, in the past couple of years, the rate of inflation has experienced a resurgence and highest figures of 18.72% in 2021 with persistent disturbances attributed to the COVID-19 pandemic, fluctuations in exchange rates and increased food cost.

 

This problem is especially acute in many developing countries with large populations and limited incomes (Ali et al., 2022). Nigeria experiences a population growth rate of approximately 2.6% per year (World Bank, 2019), facing the same challenge of persistent food inflation. Ejebilo et al (2023) confirmed that Nigeria's food inflation rate has increased significantly in the past decade. There are many examples that demonstrate this concept. But much of it has to do with the ever-increasing cost of food in Nigeria. According to data from the Central Bank of Nigeria [CBN] (2022), food inflation increased from 28.5% in 2000 to 108.3% in 2010 and reached 560% by 2022. This data shows that food prices are increasing rapidly. double and triple mainly since the beginning of the decade.

 

It is worrying that the cost of food in the agro-industrial sector in Nigeria continues to increase at an equally high rate of inflation, despite the country's natural resources and high levels of technological advancement (Raphael et al., 2024 ; Mbah et al., 2022) This may raise doubts about the legitimacy and effectiveness of a country's monetary policy. Including price and other inflation controls. Although stable pricing of goods and services at levels that do not harm the economy is one of the main objectives of contemporary economic systems, But all the efforts made were in vain. Achieving this objective of preventing a constant increase in prices is vital, and failing to do so has serious micro and macroeconomic repercussions (Ibrahim, 2024).

 

Particularly, inflation significantly impacts food production, influencing everything from input costs to consumer purchasing behavior. With the rising prices of raw materials, labor, and transportation, farmers are faced with soaring financial costs. This type of inflation may also hinder capital importation for new or updated technologies that may in the long run, improve both productivity and yield. The link between inflation and food production is a complex and multidimensional phenomenon that affects producers and consumers in all parts of the world.

 

One of the greatest shock in the beginning of food production inflation was the increase in the price of inputs such as seeds, fertilizers and pesticides. The Food and Agriculture Organization (FAO) (2021) has pointed out that worldwide fertilizer prices have soared by more than 200% in the course of the previous year owing mainly to broken supply chains and increased demand. Such increasing expenses would insistently go against the interests of farmers where some of them could, therefore, cut acreage or prefer cheaper crops, which then impacts the entire food supply chain. 

 

Inflation can also lead to changes in labor costs. As a result, there is a greater burden on agriculture. A study in the Journal of Agricultural Economics (Smith & Johnson, 2022) found that increased wage demand amid inflationary pressures can reduce the availability of agricultural labor. Especially farms that rely on seasonal labor. This labor shortage can hamper food production efficiency and affect harvest times. This raises additional concerns about food supply.

 

Ultimately, inflation influences consumer behavior as well. This affects food prices and demand. This is because consumers face higher product prices which may change their buying habits. They choose cheaper and less nutritious food (Brown et al., 2023). The relationship between inflation and food production affects not only agriculture. But it also has important implications for public health and food security. It makes sense to understand these dynamics in an increasingly volatile economic environment. considered important. Therefore, the purpose of this study.

 

1.2   Statement of the Problem

Inflation poses a critical challenge to food production, significantly increasing the costs associated with essential inputs such as fertilizers, seeds, and machinery. As noted by the Food and Agriculture Organization (FAO) (2021), rising input prices can lead to decreased production efficiency and reduced planting areas, ultimately impacting food supply. Farmers often face the dilemma of either absorbing these costs, which can erode profit margins, or passing them on to consumers, leading to higher food prices. This dynamic creates a precarious balance where food security becomes threatened, particularly in low-income regions where households already spend a larger portion of their income on food.

Moreover, inflation affects labor availability and wages, further complicating the food production landscape. A study published in the Journal of Agricultural Economics (Smith & Johnson, 2022) highlights that as inflation drives up wage demands, farmers may struggle to secure necessary labor, especially during peak harvest seasons. This labor shortage can lead to delays in planting and harvesting, exacerbating food supply issues.

The cumulative effect of these challenges not only threatens agricultural productivity but also raises significant concerns about food accessibility and nutritional quality for consumers worldwide.Top of Form However, despite the critical role of the food production sector, there is limited empirical research that specifically examines the impact of inflation on food production in Nigeria, particularly in the context of private companies like Mamuda Foods. This gap in knowledge hinders the formulation of effective strategies and policies to mitigate the adverse effects of inflation on food production. This study will therefore analyze the relationship between inflation and food production costs, trends, and productivity, using Mamuda Foods as a case study, to provide insights for addressing these challenges.

 

 

1.3   Objectives of the Study

The main objective of the study is to examine Effect of inflation on food production. Specific objectives of the study are:

1. To investigate the direct relationship between inflation rates and food production levels.
2. To examine the impact of inflation on the cost of agricultural inputs and their effect on food production.
3. To assess the influence of inflation on food prices and consumer purchasing power.

 

1.4   Research Questions

 

To guide the study and achieve the objectives of the study, the following research questions were formulated:

1. Is there a significant correlation between inflation rates and the total quantity of food produced in Nigeria?
2. Does inflation lead to increased costs of agricultural inputs?
3. Does inflation directly contribute to higher food prices for consumers?

 

1.5   Research Hypothesis

 

The following research hypothesis was developed and tested for the study:

Ho: Inflation has no significant effect on food production levels.

 

 

 

1.6   Significance of the Study

 

The study is important for many reasons. The following are the major stakeholders this paper through its practical and theoretical implications and findings will be of great significance:

Firstly, the paper will benefit major stakeholders and policy makers in the Business administration sector. The various analysis, findings and discussions outlined in this paper will serve as a guide in enabling major positive changes in the industry and sub-sectors.

Secondly, the paper is also beneficial to the organizations used for the research. Since first hand data was gotten and analysed from the organization, they stand a chance to benefit directly from the findings of the study in respect to their various organizations. These findings will fast track growth and enable productivity in the organisations used as a case study.

Finally, the paper will serve as a guide to other researchers willing to research further into the subject matter. Through the conclusions, limitations and gaps identified in the subject matter, other student and independent researchers can have a well laid foundation to conduct further studies.

 

1.7   Scope of the Study

 

The study is delimited to mamuda foods company kano state. Findings and recommendations from the study reflects the views and opinions of respondents sampled in the area. It may not reflect the entire picture in the population.

 

1.8   Limitations of the Study

 

The major limitations of the research study are time, financial constraints and delays from respondents. The researcher had difficulties combining lectures with field work. Financial constraints in form of getting adequate funds and sponsors to print questionnaires, hold Focus group discussions and logistics was recorded. Finally, respondents were a bit reluctant in filling questionnaires and submitting them on time. This delayed the project work a bit.

 

1.9   Organization of the Study

 

The study is made up of five (5) Chapters. Chapter one of the study gives a general introduction to the subject matter, background to the problem as well as a detailed problem statement of the research. This chapter also sets the objectives of the paper in motion detailing out the significance and scope of the paper.

Chapter Two of the paper entails the review of related literature with regards to corporate governance and integrated reporting. This chapter outlines the conceptual reviews, theoretical reviews and empirical reviews of the study.

Chapter Three centers on the methodologies applied in the study. A more detailed explanation of the research design, population of the study, sample size and technique, data collection method and analysis is discussed in this chapter.

Chapter Four highlights data analysis and interpretation giving the readers a thorough room for the discussion of the practical and theoretical implications of data analyzed in the study.

Chapter Five outlines the findings, conclusions and recommendations of the study. Based on objectives set out, the researcher concludes the paper by answering all research questions set out in the study.

 

1.10         Definition of Terms

1. Inflation

 The rate at which the general level of prices for goods and services rises, eroding purchasing power. In agriculture, inflation can increase the costs of inputs like seeds, fertilizers, and fuel.

2.  Food Production

 The process of cultivating crops and raising livestock to produce food. This includes all activities from planting and harvesting to processing and distribution.

3.  Input Costs

Expenses incurred in the production of food, including seeds, fertilizers, pesticides, labor, and machinery. Inflation can significantly raise these costs, impacting overall food production efficiency.

4.  Supply Chain Disruptions

 Interruptions in the flow of goods from producers to consumers, often exacerbated by inflation. Higher transportation and storage costs can lead to reduced availability of food products.

5.  Consumer Price Index (CPI)

A measure that examines the average change over time in the prices paid by consumers for a basket of goods and services, including food. Rising CPI indicates inflation and can affect consumer spending habits.

6.  Food Security

 The state in which all people have physical, social, and economic access to sufficient, safe, and nutritious food. Inflation can threaten food security by making food unaffordable for lower-income populations.

7. Agricultural Policy

 Government measures designed to influence agricultural production and food supply. Policies may be adjusted in response to inflation to stabilize food prices or support farmers affected by rising costs.

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