Agricultural Financing And Food Production In Nigeria

Project and Seminar Material for Agricultural Science Students

Agricultural Financing And Food Production In Nigeria


Abstract


This study investigated the impact of agricultural financing and food production in Adamawa State, North East, Nigeria. The study which is a survey research used primary data collected through questionnaires to respondents with an interview session. Frequency distribution tables, percentages and logistic Regression Analysis were used in data analysis. Our findings show that credit guaranty schemes on agriculture (CGSA) have positive impact on food production in Adamawa State. The Central Bank of Nigeria’s anchor borrower’s loan (CBABL) is a positive development in financing agricultural production in Adamawa State. Bank Credits to Agricultural sector (BCA) at reduced interest rate has affected food production in the State positively. Various Government Intervention Schemes (GIS) has ensured sustainable food security in Adamawa State. Based on these findings, the following recommendations are made; concerted efforts should be made to increase the level of food production in Nigeria by providing incentives to farmers. Government should increase the level of Credit guaranty schemes to farmers which will impact positively on the development of agricultural sector in Adamawa State. Awareness on the Central Bank of Nigeria’s anchor borrower’s loan should be made to farmers because of its positive impact on the development of agricultural production in Adamawa State. Bank Credits on Agriculture particularly from Bank of Agriculture (BOA) should be increased at a reasonably low interest rate to boost food production in Adamawa State. Government Intervention Schemes such as Agricultural extension services should be enhanced to ensured sustainable food security in Adamawa State.


Table of Content


Chapter One:

Introduction

  • 1.1 Background to the Study
  • 1.2 Statement of the Problem
  • 1.3 Purpose of the study
  • 1.4 Objectives of the Study
  • 1.5 Research Questions
  • 1.6 Significance of the Study
  • 1.7 Scope of the Study
  • 1.8 Definition of Terms
  • 1.9 Limitation of the Study
  • 1.10 Organization of the Study

Chapter Two:

Review of Related Literature

  • 2.1 Conceptual Review
  • 2.2 Theoretical Review
  • 2.3 Empirical Review
  • 2.4 Research Gap

Chapter Three:

Research Methodology

  • 3.1 Introduction
  • 3.2 Research Design
  • 3.3 Sample Size
  • 3.4 Method of Data Collection and Sources of Data
  • 3.5 Model Specification
  • 3.6 Estimation Techniques
  • 3.7. Reliability and Validity of Instrument
  • 3.8 Credit Delivery Procedures
  • 3.10 Ethical consideration

Chapter Four:

Data Analysis and Result Presentation

  • 4.1 Analysis of Questionnaires
  • 4.2 Presentation of Results and Evaluation of Hypotheses

Chapter Five:

Summary o Findings, Conclusion and Policy Recommendation

  • 5.1 Summary of Findings
  • 5.2 Conclusion
  • 5.3 Policy Implication
  • 5.3.1 Policy Recommendation
  • 5.3.2 Recommendation for Further Studies
  • 5.4 Contribution to Knowledge
  • REFERENCES
  • APPENDIX

Chapter One


Introduction

1.1 Background to the Study

Finance for food production has an increasing role in contemporary times. Finance affects economic growth, stagnation or even decline in any economic system. However, a strong concern has developed over time regarding the need for effective access to credit facilities for farming and manufacturing purposes. The Nigerian government recognises that finance is an essential tool for promoting mainstay sectors as they provide sustainability.
Access to finance for agriculture is an incentive for increasing the sectors’ performance thereby increasing GDP as it stimulates productive growth, strengthens small and new enterprises and reduces import of goods and services. Access to finance for agriculture increases the average inputs of labour and capital which has positive effects on production output while access to finance for manufacturing increases the level of industries in Nigeria, reduces unemployment rate which also has a positive effect on economic growth. Irrespective of the benefits that can be derived from financing agricultural and manufacturing sectors, there is an inherent risk of loan defaults amongst farmers and industries end up folding up which discourages banks from lending to farmers and producers. The need for developing the agricultural sector arises from the fact that it is critical to national development. Development of agriculture is also essential to supply the raw material needs of the manufacturing sector.

Food production is a vital pursuit in Nigeria. It provides food for the country’s over 140 million people, occupies 70% of its working population, contributes about 30% of the value of country’s export and accounts for 53% of the total wealth of the country. Food production also leads to an increase in the production of food crops as well as export crops. This results in an increase of the contribution of the agricultural sector to the foreign exchange earnings of the country. If one takes an overall view of the Nigerian economy, the immediate conclusion that can be drawn is that non-mechanized agriculture is still predominantly practiced in spite of rapid industrial development, which has taken place in recent years. Hence, the position of agriculture is not only important, but also strategic in Nigeria’s overall economic activities. Perhaps, this might have made Helliner (1996) to assert that no matter how much development or structure transformation is achieved in Nigeria, agriculture will retain its relative dominance in the economy for many decades to come. More importantly, it is from agricultural and particularly from agricultural exports, that the Nigerian economy has received its principal stimulus to economic growth.

Agriculture contributed 32% to GDP in 2001.As Nigeria strives to attain self-reliance in food production, it has become very important for concerted efforts by the government to drive growth and development in the agriculture sector through a viable value chain so as to save the country the status of remaining an import-dependent nation.
Although the country is blessed with a huge land mass and climate that favors agricultural production, there has been a continuous practice of mismanagement and wastage of farm produce. Nigeria’s food security and economy at large is on the line as inadequate storage and processing facilities which should have been provided by the value chain has become the major cause of the huge post-harvest losses of farm produce that is a daunting challenge to farmers in the country. While local farmers are able to meet most of the country’s demand for tomatoes, a staple food in almost all Nigerian homes, post-harvest losses has created a great gap between the demand and supply figures.

The resources of the entire world should be developed to the fullest with available means as a whole which can be attained only by the efficient and rational use of such resources. These resources depend on the importance attached to them. The significance of agricultural resource in bringing about economic growth and sustainable development of a nation cannot be underestimated. Agriculture contributes to the growth of the economy, provides employment opportunities for the teaming population, exports revenue earnings and eradicates poverty in the economy. Over the years in Nigeria, the volume of Agricultural Financing into the economy has continued to increase. The volume of Agricultural Financing to the private sector increased from N6.23million in 1980 to N29.21 billion in 2010. Credit to private sector as a percentage of Gross Domestic Product (GDP) increased from 12.56 percentages in 1980 to 18.59 percentage in 1993. The figure increased to 37.78 percentage point in 2010. This credit creation to the economy is expected to assist in leveraging economic agents, augment their vulnerability to economic shocks and ultimately enhance economic productivity. However, over the years, the economic growth has remained very low except for the last four years when marginal increases were recorded. This puzzle has raised concern as to the impact of bank credit on economic growth in Nigeria especially in the agricultural sector
Therefore, attempt at looking at the impact of Agricultural Financing on aggregate will not give complete picture of the situation. There is the need to focus on other real sectors like the agricultural sector especially in Adamawa State. The real sectors comprising agriculture, Construction, Industrial and manufacturing sectors constitute the soul of any the economy; hence whatever happens in the real sector will have serious effect on the entire economy. This explains the rationale for the study. Specifically, the study examines the effects of bank credit on the growth of the real sector namely agriculture.

The provision of this facilities are said to have improved the economic climate for food production and poverty alleviation in some countries such as facilitating individual farmer’s access to inputs and improved technology which has accelerated productivity, improved income distribution among farmers etc. Given these importance, the provision of credit facilities by most banks especial the Food production Banks to the agricultural sector have not been remarkable in the improvement of most peoples’ welfare either because most of the funds made available are not tailored towards the sector that provided great concern to the less privileged farmers in the rural areas or because of the stringent conditions attached to most of the loans and advances by the banks thus depriving the less privilege mostly poor farmers access to the funds.

From the foregoing therefore, it is assumed that if banks make adequate provision of credit facilities to the farmers in the agricultural sector, output and income would increase which would in the long-run reduce the level of poverty in the country. The required amount of credit facilities that must guarantee a targeted reduction of the number of people that are poor must be aimed at increasing output and income.


1.2 Statement of the Problem

In the 1960’s, agriculture accounted for 65-70 % of total exports; it fell to about 40% in 1970’s and crashed to less than2% in 1990s to date. The decline in the agricultural sector was largely due to rise in crude oil revenue in the early 70’s. Low food production has a negative effect on the Nigerian economy as a whole. It was in recognition of this fact that the Federal Government at various periods put in place credit policies, institutions and schemes that could facilitate the flow of agriculture.

Of recent, the agricultural sector in Nigeria has not been able to fulfill its traditional role of feeding the population, meeting the raw materials needs of industries, as well as providing substantial export earnings for the economy. Indeed, the contribution of the sector to total GDP has been falling, not necessarily because a strong industrial sector is displacing agriculture but as a result of neglect, waste and low productivity. The largely subsistence agricultural sector has failed to keep up with rapid population growth. Nigeria is Africa’s most populous country and once a large net exporter of food, now imports food.

A report from the Federal Ministry of Agriculture and Rural Development (2016) put the demand for tomatoes in Nigeria at 2.2million tons and the supply at 800,000 tons. According to the ministry, the actual quantity of tomatoes harvested is 1.5million tons but 700,000 tons are actually lost to post-harvest bottlenecks. National Planning Commission (2011) also revealed that agriculture contributed ₦348.7 billion recorded nation’s economy in 2012 as against ₦335.18 billion recorded in 2013. The report noted that the sectors valued-added stood at ₦348.7 billion compared with ₦335.18 billion recorded in 2011, indicating a growth rate of 3.97% as against 5.64% in 2011. It added, that the contribution of agriculture to overall real gross domestic product. Growth was 24.41% in 2012, compared with 31.41% in 2011. Growth was led by crop production, which accounted for 20.46% of the overall economic growth in 2012 compared with 24.41% in 2011. It is the most important industry in the world yet it barely features in the mind of the average citizen. While a week without your cell phone might cause some anxiety, a month without a car some frustration, a year without new clothes some stares, but a day without food can kill.

The economic stabilization Act enacted in 1982 affected expenditures on agriculture and restricted imports of the agricultural products and inputs. Various food production policies were also initiated in order to stimulate production in the sector such as Green Revolution Program, National Agricultural Insurance Scheme, Operation Feed the Nation among others.

The major problem confronting the agricultural sector today however is in its inability to contribute to foreign exchange earnings and increased productivity. Despite credit facilities to farmers, co-operative societies and agro industries to enhance productivity, agriculture has not actually assumed its rightful place in the nation’s GDP especially in Adamawa State. It would be extremely difficult to attain long run sustainable growth in the state, if not impossible without addressing the problem of the agricultural sector. This raises the question of what has been the impact of agricultural financing and food production in Adamawa State.

Historically, the root of the crises in the Nigerian economy today lies in the neglect of the agricultural sector by the federal government towards developing dependence on a monocultural economy based on oil. It stated that the slowdown in the subsector’s contribution to growth in 2012 was due to security issues in the North East especially in Adamawa State that adversely affected agricultural production and marketing. This slowdown is quite disturbing and necessitates a scientific enquiry to ascertain the contribution of Agricultural Financing to stimulate production in the sector. There was a sharp decline in export crop production, while food production increased only marginally.

Thus, domestic food supply had to be augmented with large imports. “Food import bill rose from a mere ₦113.88 million annually in 1970-1974 to ₦1,964 million in 1991” (CBN, 2003). ‘Since 1990 and until recently, Nigeria has been spending an average of 60million USD on the importation of rice annually” (Alkali, 1997). The situation deteriorated to a level where Lawal (1997) lamented that, “the agricultural sector performed below the projected 7.2% of budgetary output”.

Theoretically, input-output theory in economics posits that input determines output. More so, Keynes postulated that increased government spending boosts economic growth. In the case of Nigeria, there has been a conflicting view about spending on agriculture just as we can see from various scholars stated above. Therefore, there is the need to examine the extent to which government finance has affected agricultural productivity in Nigeria.


1.3 Purpose of the Study

To assess Agricultural Financing and Food Production in Nigeria


1.4 Objectives of the Study

The main objective of this study is to investigate the impact of credit facilities in stimulating agricultural production in Adamawa State.

The specific objectives are to:

  1. To examine the impact of Central Bank of Nigeria anchor borrower’s loan in Adamawa State.
  2. To determine the effectiveness of Credit guaranty schemes on agricultural production in Adamawa State.
  3. To determine the impact of government intervention schemes on food production in
    Adamawa State.
  4. To examine the impact of Bank credits on food production in Adamawa State

1.5 Research Questions

The study will provide answers to the following questions:

  1. Is the Central Bank of Nigeria anchor borrowers loan a positive development in financing agricultural production in Adamawa State?
  2. Has government credit guarantee schemes impacted positively to the development of the agricultural sector in Adamawa State?
  3. Have government intervention schemes ensured sustainable food security in Adamawa State?
  4. How has bank credit to agriculture enhanced the welfare of indigenes of Adamawa State?

1.6 Significance of the Study

Agriculture contributed 32% to GDP in 2001. As Nigeria strives to attain self-reliance in food production, it has become very important for concerted efforts by the government to drive growth and development in the agriculture sector through a viable value chain so as to save the country the status of remaining an import-dependent nation.
Although the country is blessed with a huge land mass and climate that favors agricultural production, there has been a continuous practice of mismanagement and wastage of farm produce. The government often appreciates and encourages sectors which contribute positively to the gross domestic product (GDP).The result of this investigation will enhance such appreciation. This can come through better policies to favour the agricultural production.

Producers or farmers of crops such as cassava, maize, rice, etc. will be encouraged to improve on their production when they realize that their effort is contributing to the gross domestic product (GDP) of their nation. This is because the boost in the economy often translates into better prices leading to profits and incomes for the farmers. However, studies on regression model using certain variables used in this study are not much. Through Agricultural Financing, they could be able to access funds or capital that is essential for the means of expansion to farmers. The choice of this research was informed by deep concern about the neglect of the agricultural sector especially in Adamawa State due to the country’s overdependence on the oil sector and the urgent need for economic diversification.

It will help agro industries to expand the control of production which means more goods and services, more profit. The organized private sector, development partners, international communities, local and foreign investors would find this study useful, especially in the context of the relevance of nation building, students and researchers in agriculture would find the study as reference materials for future study. Any other components of this study in Adamawa State not covered constitute areas of further research.


1.7 Scope of the Study

This study focused on the effect of Agricultural Financing to the agricultural sector aimed at stimulating production in the study area. The scope of the study covered the local farmers randomly selected from one Local Government Area each from the three Senatorial Districts of Adamawa State as it will not be practically feasible to reach out the entire state. The study was conducted using a well-structured questionnaire.


1.8 Definition of Terms

Credit

A thing that is borrowed, especially a sum of money that is expected to be paid back with interest

Financing

Financing provide funding for (a person or enterprise).


1.9 Limitation of the Study

Possibly there could have been some faking of responses to the items on the questionnaire provided by the researcher. The extent it occurs may influence the findings of this research study.


1.10 Organization of the Study

The study is organized into five chapters.

  • Chapter one deals extensively with the introduction and background of the subject matter, statement of the problem, objectives of the study and other preliminary issues of the study.
  • Chapter two reviewed the relevant empirical literatures and presents the theoretical framework for the study.
  • Chapter three deals with the research methodology.
  • Chapter four takes a critical look at the analysis and interpretation of data while
  • Chapter five presents the summary of findings, conclusion, and policy recommendation.

Chapter Five


Summary of Findings, Conclusion and Policy Recommendation

5.1 Summary of Findings

The research has been on the effect of Agricultural Financing on the food production in Adamawa State North East Nigeria .The research which is made up of five chapters began with an introductory chapter. The second chapter reviews related literature, chapter three presents the research methodology, Chapter four presented and analysed the data while the fifth chapter concludes the research. The study adopted survey method in collecting and analysing the data with logistic Regression Analysis and Pearson correction Matrix. The study made the following findings:

  1. Food production has a significant and positive impact on the level of economic growth in Adamawa State North East Nigeria.
  2. An increase in the output of the agricultural sector increases the level of economic growth of the Adamawa State economy.
  3. Credit guaranty schemes on agriculture (CGSA) have impacted positively to the development of the agricultural sector in Adamawa State
  4. The Central Bank of Nigeria’s anchor borrower’s loan (CBABL) is a positive development in financing agricultural production in Adamawa State
  5. Bank Credits on Agriculture (BCA) has affected food production in Adamawa State positively.
  6. Government Intervention Schemes (GIS) has ensured sustainable food security in Adamawa State.
  7. Agriculture is the key driver to the economic growth recovery plan of Adamawa State Government and could create value chain on the domestic economy.

5.2 Conclusion

Finally, Nigeria cannot be proposing of becoming one of the leading twenty economies in the world by 2020, (vision20:20:20) when her productive, leadership and administrative capacities are questionable and engulfed by corruption. Therefore agriculture that once contributed over 60% to the gross domestic product GDP and highest employer of labor to succeed of becoming the key economic driver, government must remove all bottlenecks that may hinder smooth sail in promoting agricultural production and diversify the productive base of other sectors in Nigeria if the country must achieve her vision 20:20 initiative.

Since the research has been on the effect of Agricultural Financing to the agricultural sector. Agricultural sector development has been behind the success of industrialised countries such as Australia, USA China etc. In Nigeria, despite the numerous reforms in the agricultural sector, the output of the sector has not improved significantly due to negligence, corruption, security challenges and inconsistent agricultural policies. The result indicates that the output of the agricultural sector has the potentials of improving the level of economic progress in Nigeria. The result indicates that the high interest rate charged on agricultural loans have hindered the level of food production and hence economic growth in Adamawa State. The result shows that if well organised bank credit to the agricultural sector could increase the level of economic well being of Adamawa State Nigeria.


5.3 Policy Implication

The result is important on the effect of food production on the level of economic growth in Adamawa state and Nigeria as a whole. The results show that the output of the agricultural sector has a beneficial impact on the level of economic growth in Nigeria especially as input of the industrialized sector. The results show further that credit facilities to the agricultural sector has incremental impact on the level of economic growth. The high interest rate on agricultural loans has hindered the level of economic growth in Nigeria.

5.3.1 Policy Recommendation

The following recommendations are made from the results;

  1. Concerted efforts should be made to increase the level of food production in Nigeria by providing incentives to farmers.
  2. Government should increase the level of Credit guaranty schemes to farmers which will impact positively on the development of the agricultural sector in Adamawa State
  3. Awareness on the Central Bank of Nigeria’s anchor borrower’s loan should be made to farmers because of its positive impact on the development of agricultural production in Adamawa State
  4. Bank Credits on Agriculture particularly from Bank of Agriculture (BOA) should be increased at a reasonably low interest rate to boost food production in Adamawa State.
  5. Government Intervention Schemes such as Agricultural extension services should be enhanced to ensured sustainable food security in Adamawa State.
5.3.2 Recommendation for Further Studies

It is recommended that further studies be carried out on the impact of agricultural financing on the level of economic growth in other states in Nigeria.


5.4 Contribution to Knowledge

This study has contributed to the existing knowledge through its findings that increased Bank credits, credit guarantee schemes, government intervention schemes as well as CBN anchor borrowers loan to Agricultural sector will enhance productivity in Adamawa state in particular and the nation in general.


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