Dynamic Interaction Between Demand and Supply Shocks in Agricultural Output: Evidence from Nigeria

This study investigates the dynamic interaction between demand-side and supply-side shocks in determining agricultural output in Nigeria from 1981 to 2023. Despite agriculture’s critical role in the Nigerian economy, its output continues to fall short of meeting the nation’s growing demand. This study adopts a Structural Vector Autoregression (SVAR) model to examine how shocks originating from exchange rate fluctuations, climate variability, and security conditions and inflation affect agricultural output over time. Using annual time series data, the findings revealed that agricultural output in Nigeria is influenced by both demand and supply shocks, with climate and inflation exerting the most persistent effects. Results from impulse response functions (IRFs) and forecast error variance decomposition (FEVD) revealed that agricultural output is highly sensitive to climate shocks and inflation. Temperature and inflation shocks exert the most significant and persistent negative effects on output, while security and exchange rate shocks have relatively moderate but notable impacts. The findings highlight Nigeria’s agricultural vulnerability to macroeconomic instability and environmental volatility, particularly in the context of rising food insecurity and climate change. Additionally, supply shocks, especially from temperature changes, exert stronger short-term effects than demand shocks. These results imply that policy efforts aimed at stabilising food production must be multidimensional addressing climatic vulnerability, insecurity, and macroeconomic instability simultaneously. The study recommends investments in climate-smart agriculture, inflation-targeting frameworks, and active involvement of stakeholders in promoting resilience measures that are directly responsive to farmers’ practical challenges.