The Impact of Fuel Subsidy Removal on Food Prices in Nigeria: A Spatial Difference-in-Differences Analysis

Abstract

Food prices have recorded an unprecedented surge since the removal of fuel subsidy in Nigeria, raising food security concerns and warranting some investigations. This thesis employs a spatial difference-in-differences with data from May 2020 to May 2024 to examine the differential impact of the subsidy reform on food prices by distance from Benue – Nigeria’s main food supply hub. The results show that the reform led to higher food price increases in Near states, compared to Far states, although the latter had an insignificantly faster increase. Mediation analysis shows that fuel prices significantly mediate this impact, whereas transport costs do not. These findings, albeit contrary to the a priori expectation, underscore a rather complex interplay between the fuel subsidy removal and food price changes in Nigeria. The study then discusses the implications of these findings and recommends some policy options to address equity concerns about food price dynamics in post-subsidy Nigeria.