FUEL SUBSIDY REFORM AND PRICE TRANSMISSION IN INFORMAL URBAN FOOD SYSTEMS: EVIDENCE FROM BENIN METROPOLIS, NIGERIA

Abstract

This study examined the effects of the removal of fuel subsidies in May 2023 on
transportation costs, commodity prices, and traders’ livelihoods in urban informal markets in Benin
Metropolis, Nigeria. Data were collected from 364 traders in the Oba and Uselu markets and
analysed using descriptive statistics, Pearson correlation, paired-sample t-tests, and simple linear
regression. The results revealed a substantial increase in transportation costs following subsidy
removal, while traders’ average monthly profit declined by ₦40,491. However, regression analysis
showed that increases in transportation costs did not significantly predict changes in commodity
prices, indicating weak or incomplete price pass-through within the market system. Despite the
limited transmission of commodity prices to the broader economy, traders experienced a notable
decline in profit levels, suggesting that part of the cost shock was absorbed internally rather than
passed on to consumers. Correlation analysis further revealed a moderate positive relationship
between household income and subsidy-related economic pressure, highlighting greater
vulnerability among lower-income traders. By integrating Price Pass-Through Theory with the
Sustainable Livelihoods Framework, the study demonstrates that informal urban markets serve as
critical arenas in which macroeconomic policy shocks are mediated through traders' adaptation,
competitive pricing behaviour, and livelihood adjustments. The findings highlight the need for
policy reforms, such as fuel subsidy removal, to be accompanied by targeted support measures,
including improved transport systems, trader support programmes, and phased policy
implementation, in order to reduce economic vulnerability and strengthen the resilience of urban
food distribution systems in developing economies.