📖 ABSTRACT/OVERVIEW
Price volatility in agricultural markets creates significant uncertainty for producers, processors, and traders, leading to suboptimal investment decisions and reduced long-term sectoral development. In Ogun State, in Nigeria's South West geopolitical zone, pepper is a high-value horticultural commodity traded in volatile spot markets, yet the relationship between price volatility and upstream investment behaviour has not been empirically studied at the farm level. This study analyses price volatility in the Ogun State pepper market and examines its effect on investment decisions by farmers and processors along the value chain. Monthly farmgate and wholesale pepper price data spanning 2019 to 2024 were obtained from Ogun State Agricultural Development Programme records and supplemented with market survey data. Price volatility was modelled using a generalised autoregressive conditional heteroscedasticity (GARCH(1,1)) model. Investment decision data were collected from 120 farmers and 30 processors through structured interviews. Volatility-investment relationships were estimated using Tobit regression to account for censored investment expenditure data. Results indicate significant ARCH and GARCH effects in pepper prices, confirming persistent volatility with asymmetric upside and downside movements. Estimated volatility was negatively associated with investment in storage infrastructure and irrigation expansion among farmers. Processors displayed investment paralysis during high-volatility quarters. The study recommends establishment of a pepper futures market reference price mechanism and a price stabilisation reserve fund administered through the Ogun State agricultural ministry. Keywords: price volatility, GARCH, pepper value chain, investment decisions, Ogun State
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