1.1 Background to the Study
The word agriculture is a late Middle English adoption of the Latin word agricultura, which was derived from the root words ager, which means field and cultura, which means cultivation or growing. According to Komlafe (1985), agriculture is the science and act of cultivating the ground for production of crops, and the preparation of plant products for man’s consumption. Agriculture is also an act of rearing animals (including fish production) as well as production and processing of raw materials for industries. Anyanwu (1997) was of the opinion that agriculture is the main source of gainful employment from which a nation can feed its teeming population, providing the nation’s industries with local raw materials and as a reliable source of government revenue.
In the 1960s, the agricultural sector contributed greatly in domestic production of goods, employment generation and in foreign exchange earnings for Nigeria (Famogbiele, 2013). This was the situation for almost three decades before oil was discovered in Nigeria. Since then, the agricultural sector has lost its top spot as the foremost revenue earner for the country. Consequently, the percentage of financing for the agricultural sector in Nigeria has dropped since the 1970s. Agricultural sector plays a very important role in every economy. It provides massive employments, generates basic raw materials, provides food for the populace and generates foreign exchange earnings. Agriculture provides security and stability in the economy and provides raw material markets for the industrial sector (Okumadawa, 1997, World Bank, 1998, Food and Agricultural Organization, (2006). Agriculture is broadly divided into two types. These are commercial agriculture and subsistence agriculture. In commercial (industrialised) agriculture, large quantities of crops and livestock are produced through industrialised techniques for the purpose of sale. In subsistence agriculture, the farmer lives on a small piece of land and produce enough food to feed his/her household and have a small cash crop.
Obviously, the agriculture sector requires funding. Funds are needed by farmers to purchase land, buy implements and input at the required time as well as to hire labourers or workers needed for the day to day activities of the farm. Most times, funds provided by the Federal Government in from of agriculture finance are usually not sufficient. As a result of this many farmers lacks extra credits from private sectors, specialized banks and commercial banks. However, these credits require stringent conditions for accessibility. Agricultural financing generally means studying, examining and analysing the financial aspects pertaining to production of agricultural products and their disposal. Agriculture finance on the other hand is a branch of agricultural economics which deals with and financial resources related to individual farm unit (Tandon and Dhondyal 1962). Murray (1953) defined agricultural financing as an economic study of borrowing funds by farmers, the organization and operation of farm lending agencies and of society’s interest in credit for agriculture.
Over the years, the inability of the agricultural sector to expand as well as contribute immensely to Nigerian economic growth was due to inadequate financing required to improve and facilitate agricultural schemes. Agricultural financing is studied both in micro and macro level. Macro agricultural financing is concerned with different sources of raising funds for agriculture for the whole economy. It is also concerned with regulations monitoring and controlling of different agricultural credit institution. Micro agricultural financing is concerned with the financial management of the individual farm business unit. It is also concerned with the study as to how individuals or farmers consider various sources of credit to be borrowed and how he allocates these credits to the farm and its alternate use.
1.2 Statement of Problem
According to June 2012 report of Central Bank of Nigeria (CBN), the contribution of the agricultural sector to the Nigeria’s Gross Domestic product (GDP) decreased from about 65% in pre- and post-independence era to about 42% in 2012 despite almost N300 billion sunk into the sector through various agricultural financing agencies (Famogbiele, 2013). This decrease in GDP mean an abysmal low contribution to the economy for a sector which was once the mainstay of the economy in the 1960s and is also a better alternative to oil sector in solving Nigeria’s economy woes in the present dwindling of oil prices. The Federal Government of Nigeria has initiated policies, schemes and established institutions such as the Nigeria Agricultural Co-operative and Rural Development Bank (NACRDB) to ensure adequate funding of the agricultural sector and economic revival and growth (Famogbiele, 2013). In spite of these numerous policies and ideas, the sector is still plunged. The following paragraphs highlights verifiable problems which has resulted to abysmal contributions of agricultural financing and indeed agricultural sector to the growth of Nigeria’s economy.
One of the objectives of the NACRDB is to contribute to the overall growth and development of the economy (Ezike, Nwibo, Odoh, 2009). However, this objective cannot be achieved with meagre budgetary allocation to the agricultural sector in general. Relative to the amount of money budgeted to other sector of the Nigeria economy, the total budgeted amount to agriculture each year is structurally deficient, insignificant and inadequate (Famogbiele, 2013). For example, only 4% of the Federal Government’s annual total budget has been consistently allocated to agricultural sector since 2006 (Sanusi, 2011).
Since the Commodity Marketing Board (CMBs) were scrapped in the late 1980s in Nigeria, the agricultural sector took a nosedive. The CMBs ensured effective channel of stable, good market and pricing for farm produce as well as ensured a proper link between the peasant farmers, the commercial farmers and the outside market (Famogbiele 2013; Owofemi, 2011). This means that the agricultural sector has been stripped of one of its power of contributing to the economic growth. One of the activities of the defunct CMBs which helped the Nigeria’s economy in the 1960s and favoured life of the farmers at the grassroots was the promotion of and establishment of adequate storage facilities which enable the CMBs to effect the right pricing and distribution of farm produce (Fomogbiele, 2013). Since these adequate storage facilities are lacking, it has resulted to ineffective price control, an all-round seasonal distribution of farm produce, and hence low economic growth and development.
Most farmers are faced with difficulties in loan repayment and collaterals. Awoyemi (1981), regarded collaterals as the greatest obstacle confronting farmers in sourcing out credits both from formal and informal sectors. This is often as a result of unforeseen circumstances which in turn results to inability of farmers to capture financial services. Therefore, government through its policies, schemes and programmes should aim at providing finances to farmers to increase agricultural and economic growth, which has been underdeveloped.
1.3 Research Questions
The following research questions are considered relevant to the study.
1. Is there any significant impact of agricultural financing on the economic growth in Nigeria?
2. Is there any long-run relationship existing between agricultural financing and the economic growth in Nigeria?
1.4 Research Objectives
The general objective of this research is to examine the contributions of agricultural financing to economic growth of Nigeria within the period under study. To achieve these objectives, two specific objectives have been identified. These are to:
1. Examine if agricultural financing have any impact on economic growth of Nigeria.
2. Examine if there is any long-run relationship existing between agricultural financing and economic growth in Nigeria.
1.5 Research Hypotheses
The following null hypothesis would guide this research work.
Ho: Agricultural financing do not have any significant impact on economic growth in Nigeria.
Ho: There is no long-run relationship existing between agricultural financing and economic growth in Nigeria.
1.6 Significance of the Study
Agriculture is expected to make significant contribution to the general economy and also to the net foreign exchange earnings. The findings of this study will be useful to different categories including students of agricultural economics, economics and policy makers who are interested in the contribution of agriculture to the economic growth of Nigeria. Agricultural financing has vital and significant importance in the agro-socio-economic development of the economy both in macro and micro levels. Therefore, this research would also enable the government to make decisions on how to determine the suitable financial policies to adopt to help in solving financial problems associated with the agricultural sectors such as loan procurement and effective lending to benefit the micro farmers. Agricultural financing can also reduce regional economic imbalances and in reducing wealth variation. Hence, this research will serve as an avenue for both the public and private sector or investors to invest tremendously and to contribute to agricultural growth thereby stimulating economic development and growth. This research would also contribute tremendously to the existing knowledge in the area of agricultural financing by teaching the public about agriculture, its various financing policies toward achieving sustainable economic growth in Nigeria.
1.7 Scope and Limitation of the Study
The study will analyze the impact of agricultural financing on economic growth in Nigeria for the period of 34 years (1980-2014) using annual data reports from the CBN statistical bulletin.
The major limitation of the study is that there is a discrepancy and inconsistency of data. The data reports from the central bank of Nigeria are sometimes different from that of federal bureau of statistics. Most times there are series of omitted data which relevant to the study.
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