The Impact Of Agricultural Output On The Nigerian Economy

Project and Seminar Material for Agricultural Engineering AE

The Impact Of Agricultural Output On The Nigerian Economy


This study examines the long run relationship between agricultural output and economic growth in Nigeria for the period 1981 to 2014 using time series data. Results from Johansen maximum likelihood co-integration approach and Vector error correction model support evidence of long run relationship between agricultural output and economic growth in Nigeria. Granger causality test also confirms the co-integration results indicating the existence of causality between agricultural output and economic growth in Nigeria. The nature of the causality however depends on the variable used to measure Agricultural output. The paper therefore recommends that the government should further strengthen agricultural policies in the area of funding, storage facilities, and market access to enhance agricultural production. Policy Strategies that will make agriculture more profitable and attractive, less laborious with improved technology should be adopted and promoted to attract investors and the youths back to agriculture.

Chapter One


One of the important objectives of macroeconomic policy in has been the rapid economic growth of an economy. Economic growth is defined as “the process whereby the real per capita income of a country over a long period of time.” Economic growth is measured by the increase in the amount of goods and services produced in a country. A growing economy produces more goods and services in each successive time period. Thus growth occurs when an economy’s productive capacity increases which in turn is used to produce more goods and services. In its wider aspect, economic growth implies raising the standard of living of the people and reducing Inequalities of income distribution. Economic growth is a desirable goal for a country. But there is no agreement over the annual growth rate which an economy should attain. (Jhingan, 2000).

Generally, economists believe in the possibility of continual growth .This belief is based on the presumption that innovations tend to increase productive technologies of both capital and labour over time. But there is every possibility that an economy may not grow despite technological innovations. Production might not increase further due to lack of demand which may retard the growth of the productive capacity of the economy. The economy may not grow further if there is no improvement in the quality of labour in keeping with the new technologies.

Economic growth is usually measured in terms of an increase in real gross national product (GNP) or gross domestic product (GDP) over time or by an increase in income per head over time. GDP measures increase in total output to a change in population. Thus, if total output rises higher as compared to population, then theirs an improvement in the average living standards. Growth is desirable because it enables the community to consume more private goods and services and the provision of a greater quantity of social goods and services such as health, education, etc. in this manner improving living standards. Government can also stimulate economic growth by increasing its current spending in the economy and through tax cuts (fiscal policy), and by increasing money supply and reducing interest rates (monetary policy).

Principally, there are three main determinants of economic growth, which are; the growth of its labour force, the growth of capital stock, and technical progress.

Nigeria used to be heavily dependent on the agricultural sector prior to the oil boom. In the early 1950’s up to the early 1970’s before the discovery of crude oil, agriculture was the mainstay of the economy, employing 70 per cent of the total population. Although subsistence farming was predominant, it was a major revenue earner for the country. In the early 1980’s, it became more apparent that the agricultural sector could no longer perform its traditional role of meeting domestic food requirement, raw materials for industry and started to decline as a major foreign exchange earner through exports due to economic , social and political problems.

Nigeria’s soils and climate allow cultivation of a wide variety of food crops, including cassava (of which Nigeria is the largest world producer), millet, sorghum and maize. Agriculture is Nigeria’s biggest employer of labour, accounting for about 60 per cent of the workforce, working mainly in small-holdings using basic tools. Together with livestock rising, it provides a third of gross domestic product.

Growth in agricultural output averaged 3.5 per cent over 1993-1997, higher than the population growth rate, 4.0 per cent, 5.2 per cent, 2.9 per cent, 5.1 per cent from 1998-2000 respectively (CBN 2000). This compares with a period of stagnation in the first half of the 1980’s when growth averaged just 0.5 per cent, due to low producer prices, marketing restrictions and a drought. Agriculture picked up after the economic reforms introduced in 1986, which included trade liberalization, dissolution of price-fixing marketing boards and improved producer prices facilitated by devaluation of the naira. Growth in the sector averaged 3.8 per cent in 1986-92, and there was a burst of activity in the cash crop sector, with many farmers returning to previously abandoned fields. However, the renewed interest was not sustained, nor did it result in increased investment in cash crop production, mostly carried out by smallholders. Improved food crop production contributed to a sharp fall in food imports, from 19.3 per cent of total imports in 1983 to 7.1 per cent in 1991, although this crept back up to 13.1 per cent in 1996. Much of the increase in agricultural output in recent years has resulted from expansion of the area under cultivation, rather from increased productivity. The sector has been hampered by lack of investment in improved farming technology. Over-farming of fragile soil has worsened.

The share of agricultural products in total exports has plummeted from over 70 per cent in 1960 to less than 2 per cent today. The decline was largely due to the phenomenal rise of oil shipments, but also reflected the fall in the output of products like cocoa, palm oil, rubber and groundnuts, of which Nigeria was once a leading world producer. For example, production of cocoa, currently Nigeria’s biggest non-oil export earner, has remained around 160,000 tonnes per year since 1995, compared with an annual average of 400,000 tonnes at its peak before the oil boom. The government has made some effort to encourage private investment in agriculture and agro-industries by providing incentives, including tax breaks, finance credit and extension services, but without much success

1.2 Background of the Study

This area of study is quite broad and as such various studies have been carried out in the area in general and other sub-sectors, highlighting the relevance of the sector towards economic growth. With the understanding been identified, many researchers, scholars have developed models on improving and developing the agricultural sector especially in developing countries. However the study will attempt to review available literatures within its reach.

1.2.1 Socio-economic and development challenges in Nigeria’s agriculture

Nigeria is one of the largest countries in Africa, with a total geographical area of 923 768 square kilometres and an estimated population of about 126 million (2006 estimate). It lies wholly within the tropics along the Gulf of Guinea on the western coast of Africa. Nigeria has a highly diversified agro ecological condition, which makes possible the production of a wide range of agricultural products. Hence, agriculture constitutes one of the most important sectors of the economy. The sector is particularly important in terms of its employment generation and its contribution to gross domestic product (GDP) and export revenue earnings. Despite Nigeria’s rich agricultural resource endowment, however, the agricultural sector has been growing at a very low rate. Less than 50% of the country’s cultivable agricultural land is under cultivation. Even then, smallholder and traditional farmers who use rudimentary production techniques, with resultant low yields, cultivate most of this land. The smallholder farmers are constrained by many problems including those of poor access to modern inputs and credit, poor infrastructure, inadequate access to markets, land and environmental degradation, and inadequate research and extension services.

Since the collapse of the oil boom of the 1970s, there has been a dramatic increase in the incidence and severity of poverty in Nigeria, arising in part from the dwindling performance of the agricultural sector where a greater majority of the poor are employed. Furthermore, poverty in Nigeria has been assuming wider dimensions including household income poverty, food poverty/insecurity, poor access to public services and infrastructure, unsanitary environment, illiteracy and ignorance, insecurity of life and property, and poor governance. In response to the dwindling performance of agriculture in the country, governments have, over the decades, initiated numerous policies and programs aimed at restoring the agricultural sector to its pride of place in the economy. But, as will be evident from analyses in the study, no significant success has been achieved due to the several persistent constraints inhibiting the performance of the sector. From the perspective of sustainable agricultural growth and development in Nigeria, the most fundamental constraint is the peasant nature of the production system, with its low productivity, poor response to technology adoption strategies, and poor returns on investment. It is recognized that agricultural commercialization and investment are the key strategies for promoting accelerated modernization, sustainable growth and development and, hence, poverty reduction in the sector. However, to attract investment into agriculture, it is imperative that those constraints inhibiting the performance of the sector are first identified with a view to unlocking them and creating a conducive investment climate in the sector.

The development challenges of Nigeria’s agriculture are, therefore, those of properly identifying and classifying the growth and development constraints of the sector, unlocking them, and then evolving appropriate strategies for promoting accelerated commercialization and investment in the sector such that, in the final analysis, agriculture will become one of the most important growth points in the economy.

In spite of the existence of a well-articulated agricultural policy document for Nigeria since 1988, the country has never established a systematic focus in her agricultural planning history that shows a conscious effort to purposely prioritize her agricultural development based on the generally identified components that constitute modern agriculture. Over the years, there has been the development and adoption of programs that tended to generally support only increased production of commodities in the country. Such programs have included, among others :

  1. Farm settlement schemes (FSS) in the early to mid 1950s for creating farmsteads of the Israeli Moshav-type agriculture intended to increase commodity output and create employment for young school leavers.
  2. River basin development authorities (RBDA’s) for the purpose of harnessing water resources for farmers throughout the country.
  3. Green revolution scheme (GRS) that encouraged all Nigerians in both urban and rural areas to go into agriculture for both commerce and provision of food for home consumption.
  4. Agricultural development programs (ADP’s) in all states of the .federation to help organize farmers into more productive agriculture through the provision of modern inputs.

Each of these programs/schemes succeeded in momentarily increasing food production only. There were no inbuilt components that purposely catered for the processing and/or commercialization of the food output. Thus, understandably, they failed as efforts aimed at developing the agriculture sector. Recent attempts that have recognized agriculture’s current level of performance and the fact that every aspect of Nigeria’s agriculture sector needs attention have only listed specified areas that require attention. For instance, the 2001 Rural Development Sector Strategy identifies the following areas for immediate attention if agriculture and rural development in Nigeria are to make the desired impact on the lives of the people:

  1. Institutional restructuring and role reassignment in the agricultural extension sub sector.
  2. Agricultural technology development and natural resource management
  3. Physical and social infrastructural development.
  4. Public intervention in specified areas of rural agriculture to measure effectiveness.
  5. Human capacity building in the agriculture sector.

Similarly, the 2002 Agricultural Policy document that listed the new directions that agricultural development in the country should take has also only listed the various components of the agricultural sector without any attempt at prioritizing the components.

1.3 Statement of the Problem.

The specific problems to address include;

  1. Inadequate investment opportunities in the sector.
  2. What steps have been taken in past years and in recent times to fuse agricultural proceeds into a source of economic growth
  3. In what ways have the government policies on agriculture aid and encourage private and public participants in the agricultural sector.
  4. The damaging effects of inadequate storage facilities which has caused great post-harvest loss.

1.4 Objectives of the Study

The purpose of the study is to examine the impact of agricultural output on the growth of the Nigerian economy, specifically. The objectives are:

  1. To know if there are government policies that support agriculture in Nigeria and if there are, how effective and efficient.
  2. To also help in highlighting alternative procedures that can be taken to improve methods of enhancing agricultural output effectively.
  3. To make policy recommendations based on the findings of the study.

1.5 Scope and Limitation of the Study.

The study focuses on the Nigerian economy as a whole. That is agricultural sustainability in Nigeria, Institutional reforms, Financial Reforms, Agricultural development programmes, analysis of selected agricultural indicators, constraints of agricultural output and strategies for maintaining agricultural growth in Nigeria. Limitations are bound in the time series data available.

The study covers a span of 34 years; the values are all evenly distributed about the mean.

1.6 Significance of the Study

It is believed that the discovery of the study will benefit the government tremendously, in terms of agricultural policies, budgetary allocation on agricultural expenditure, the importance of agriculture and its effects on economic growth, also to encourage participants both public and private alike, provision of adequate subsidies , will enable the farmers achieve whatever goals and objectives .

Furthermore, most areas of output have their benefit as well as challenges in Nigeria thus the study renders adequate solutions to such challenges. The literature review will serve as a useful source of secondary database for the academic world and Nigeria at large

1.7 Formulation of Hypothesis

In an attempt to achieve the above objective, the study is going to test the hypothesis:

  • H0: Agricultural output has no impact on economic growth in Nigeria.
  • H1: Agricultural output has an impact on economic growth in Nigeria.

1.8 Methodology

This study relies heavily on the use of secondary data. These will be obtained from the CBN statistical bulletin as well as its annual report and statement of accounts, and economic reports on agriculture. Data from the Ministry of Agriculture will also be used in our analysis.

The ordinary least squares econometric technique will also be used to analyse our data. This method has been chosen because of its BLUE (Best Linear Unbiased Estimate) properties. The regression approach in general is adopted since we are assessing the impact of an independent variable on a dependent variable.

1.9 Organization of the Study

In addition to this introductory chapter, the essay has four other chapters. Chapter two presents review of the literature surrounding the study as well as enlightenment on some basic concepts pertaining to the study. Chapter three presents a theoretical framework, estimation of the models and model specification of the study, while chapter four presents the empirical analysis on the findings of the study.

Furthermore, chapter five discusses the summary of the research findings

Chapter Five

Summary, Conclusion and Recommendation

5.1 Introduction

It is important to ascertain that the objective of this study was to ascertain the impact of agricultural output on Nigerian economy.

In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of agricultural output on Nigerian economy.

5.2 Conclusion

In conclusion, the key to resuscitation of agricultural output is to make the farm sector more productive through better and efficient policies so as to reverse the negative relationship between agricultural output and economic growth in Nigeria as revealed by the finding of this study. The study reveals a significant long run relationship between agricultural output and economic growth. This being the general objective of the study, it is necessary to emphasize how agricultural production in Nigeria can be improved which in turn will increase the level of economic growth. Therefore the monoculture nature of the Nigerian economy which basically relies on oil proceeds should no longer be allowed. This study suggests the need for government to diversify the economy away from its major dependency on oil by promoting the development of the agricultural sector. This will no doubt create more employment opportunities for the teaming unemployed population, provide more investment opportunities, increase non-oil export, improved technology, external reserve leading to favourable foreign exchange conditions and improved economic growth for the country.

5.4 Recommendations

It is recommended that Government should provide funds to acquire sophisticated farm tools and increase her budgetary allocation to this sector in a consistent manner because of its importance to the national economy, hoping that with proper monitoring of fund, it would contribute more significantly to the economy of the country. An effective utilization of such funds is also advocated and all areas of wastage blocked. The peasant farmers who live in the rural areas and who are the major providers of food for the nation should be adequately catered for by making the rural areas more conducive and habitable by the provision of adequate infrastructural facilities such as good roads, pipe borne water and electricity. The provision of these facilities will no doubt impact positively on the rural farmers’ productivity.

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