A Review of the Nigerian Floating Exchange Rate Regime and its Effect on Food Prices

Abstract

This study reviews the Nigerian floating exchange rate regime and its effects on agricultural food prices. Nigeria’s adoption of a floating exchange rate regime in June 2023, shifting to a market-driven system, has significantly impacted agricultural food prices, driven by naira depreciation. This systematic review looks at how agricultural inputs affect the economy in Nigeria. Agriculture provides jobs for many and helps ensure food security. The review combines peer-reviewed articles and reports published between 2015 and 2022. It uses both qualitative and quantitative methods to understand price changes, market fluctuations, and their impacts on farmers and consumers. The review shows that when the currency loses value, it raises costs for imported inputs, contributing to a food inflation rate of 40.87% in June 2024. This situation reduces affordability since food represents 56.65% of household spending. This is the impact of the exchange rates; even lesser inflationary pressure than that produced by one rate is that of the parallel market rates. Exchange rates of a weak naira will serve the interest of commodity exportation like cocoa. This also assists in reducing profitability of small holder farmers due to the high cost of production. The Central Bank of Nigeria, for its part, has instituted the injections of cash into the foreign exchange to as much as 360 million dollars and introduced the Electronic Foreign Exchange Matching System. All of this is intended to eliminate volatility in the market. There are some issues which are not addressed by the current methodologies of data collection and organisational structure. The two general recommendations as provided in the review are with the intention of building production within the country as well as building infrastructure to restrict use of foreign inputs.