ABSTRACT
In recent decades, the main and potential contribution of agriculture to economic growth has been a subject of much controversy among development economists. As some contend that agricultural development is a pre-condition for industrialization, others strongly object it and argue for a different path. Taking advantage of ordinary least square method (OLS), the research carried out by means of secondary data and using Gross Domestic Product (GDP) as the independent variables. Credit to agricultural sector (CCAS), Government expenditure on agriculture (GEA) Inflation Rate (INF) and agricultural output value (AOV) to re-examine the question of whether agriculture could serve as an engine of Economic growth in Nigeria. The result gotten from the empirical analysis shows that Agricultural sector has a significant relationship with economic growth in Nigeria and Credit to agricultural sector is negative and insignificant in explaining economic growth in Nigeria. It was also recommended that government should encourage agricultural activities and to boost agricultural output (encouraging mechanized agricultural products) as it is significant in explaining economic growth in Nigeria.
CHAPTER ONE
INTRODUCTION
- Background to the Study
Agriculture has been an important sector in the Nigerian economy. Its importance to the economy is so enormous that it brings about economic growth and sustainable development if its resources are being harnessed. Agricultural sector has a multiplier effect on any nation’s socio-economic. Agricultural sector is estimated to contribute 34.4 percent variation in gross domestic product (GDP) between 1970 and 2010 in Nigeria.
Agriculture is the foundation and bedrock upon which the development of stable human community has depended on throughout the whole universe such as rural and urban communities. It is concerned with the husbandry of crops and animals for food and other purpose. The study of the history of economics provides us with ample evidence that agricultural revolution is a fundamental pre-condition for economic development. The agricultural sector has the potentials to be the industrial and economic springboard from which a country’s development can take off. Indeed, more often than not, agricultural activities are usually concentrated in the less developed rural areas where there is a need for rural transformation, redistribution, poverty alleviation and socio-economic development.
The agricultural sector has the potentials to shape the landscape, provide environmental benefits such as conservation, guarantee sustainable management of renewable natural resources, preserve biodiversity and contribute to the viability of rural areas development. Through its spheres of activities at both the macro and micro levels, the agricultural sector is strategically positioned to have a high linkage effect on any nation’s quest for socio-economic and industrial development.
The growth of the agricultural sector in Nigeria was not smooth. Anyanwu (1967) held that during the colonial period between1861 to 1960, attention was given to agricultural research and extension services. Among the activities that were done was the establishment of a research station in Lagos by Sir Claude Mc. Donald in 1893: Landmark of 10.4 km was acquired by the British Cotton Growing Association (BCGA) in 1899 for experimental purpose strictly for cotton and was named “Moor Plantation” in Ibadan. In 1912, the Department of Agriculture was established in each of the then southern and Northern Nigeria, but the activities of the department were virtually suspended between 1912 and 1921 as a result of the First World War and its aftermath. The period between 1929 and 1945 was a difficult one for the agricultural sector of Nigeria. This was the period of great depression when the world prices on commodities fluctuated. This affected the agricultural sector negatively because the volume of agricultural product increased but the value did not increase proportionally.
The period 1945 to 1945 marked the period of expert boom, because counties were just recovering from the Second World War and these countries needed to develop. They depended on primary production for the beginning stage of industrialization. They needed to revitalize their industrial sector by demanding primary goods. Prices of primary products rose higher again because there were speculations that there would be a third world war due to the outbreak of the Korean War. However, after this period, there came another period of price instability. This made the reliance on agriculture and its products to fall, leading to the establishment of a market board. This board bought these products from the local farmers and sold them overseas.
In spite of all the period, Nigeria made great revenue from agriculture. In the pre-independence era, the agricultural sector contributed most to the GDP of Nigeria. Helleiner (1966) said that in 1929, export production amounted to 57% of Nigeria’s revenue of which agriculture contributed about 80% of the export. On attainment of political independence in 1960, the trend was still very much the same, the Nigeria economy could reasonably be described as an agricultural economy, because agriculture served as the engine of growth of the overall economy (Ogen 2003).
According to Alkali (1997) Nigeria was the world’s second largest producer of cocoa, largest exporter of palm oil during the period. And was also a leading exporter of other major commodities such as cotton, groundnut, rubber and hides and skins. Between 1964 and 1965, agricultural output accounted for 55% of GDP and employed 70% of the adult workforce (Matton, 1981). In 1970, agricultural export crops like cocoa, groundnut, cotton, rubber, palm oil, palm kernel, etc. accounted for an average of between 65% and 75% of Nigerian foreign exchange earnings and provided the most important source of revenue for the federal as well as state government through expert products and sale taxes (Ekund are 1973). Despite the reliance of Nigerian peasant farmers on traditional tools and indigenous farming methods, these farmers produced 705 of Nigerian’s exports and 95% of its food needs (Lawal, 1997).
However, the 1967 to 1970 civil war in Nigeria coincided with the oil boom era, which resulted in extensive exploration and exportation of petroleum and its strong agriculture in favour of an unhealthy dependence on oil (United States Department of state, 2005). Ever since then, Nigeria has been witnessing extreme poverty and insufficiency of basic food items. The agricultural sector contributions now accounts for less then 5% of Nigeria’s GDP (Olagbaju and Fashola, 1996). It is against this backdrop that we set out to research on the impact of agricultural development on Nigeria economic growth. As noted earlier, the neglect of the agricultural sector and the dependence of Nigeria on a mono-cultural crude oil based economy had not augured well for the well-being of the Nigerian economy. It becomes therefore imperative to study the impact of agricultural development on the Nigeria economic growth.
- Statement of the Problem
The agricultural sector has suffered from years of poor management, inconsistent and poorly implemented government policies, government neglect and lack of basic infrastructure. Agriculture accounted for 30% of the GDP in 2010 (World Factbook, 2012).
Nigeria is no longer a major exporter of cocoa, groundnut, rubber and palm products. Coca production mostly from obsolete varieties and over-aged trees are stagnant at around 150,000 tones annually. There is also a decline in groundnut, palm oil and other major export crops (United States Department of State, 2005). The decline in agricultural production was largely due to the rise of oil shipments (Sekumade, 2009). Because of this backdrop, agriculture has not kept up with the rapid population growth and Nigeria once a large net exporter of Agricultural Products now imports most of its food requirements. Dependence on oil is not only the cause of the under-development of the Nigerian agricultural sector, but also:
The Nigerian agriculture is characterized and surrounded by bunch of illiterate farmers who live in rural areas, producing over 90% of the total food consumed and other agricultural products and with regards to their educational status giving little or no room for improvement through scientific research. And also more than 90% of the consumed food in Nigeria is provided by the small-scale farmers.
The Nigerian agriculture lacks storage facilities and these have led to so much wastage and high cost of storage. This hinders the availability of source perishable agricultural produce through the year, therefore hindering agricultural development.
Another negative force is Dependence on weather which affects the increase in agricultural produce. Nigeria Agriculturists or farmers still depend on rainfall only to produce instead of the use of irrigation that supplies water all through the year.
The agricultural sector is poorly financed in Nigeria. They do not get credit easily from financial institutions, like commercial banks. The agriculturists find it difficult to finance projects which are capital intensive. The commercial banks cannot grant loans easily to a small scale farmer because of low produce and low profit which results to a failure in paying back the loan.
In addition, the dependence on imported foods has disincentive investment in local farming. Also, soil infertility is one of the problems of agriculture in Nigerian. According to the food and Agricultural Organization of the United Nations (FAO, 2012), with proper management, the soil can achieve medium to good productivity. The major problem that affects soil fertility is soil erosion. Wind erosion, strong winds expose seeding lings and crops root system by blowing away loose, fine grain soil particles in drifts, which can cover crops.
Aleneet al., (2005) opined that Nigeria is endowed with a large deposit of agricultural resources, arable land for the cultivation of crops and rearing of animals. In the 1960s and 1970s the agricultural sector constituted over 65% of total export. The Nigerian agricultural sector was renowned for the export of cash crops (agricultural crops and produce with export value) namely cocoa, rubber, hides and skin, groundnut palm among a host of many others. The agricultural sector holds an enormous potential for the growth and economic development of the country.
In a similar study carried out by Bekun (2011) titled “Economics of Yam Marketing in Minna, Nigeria.” The study revealed that over 31.5 million metric tons of yams were produced in the study areas. This is overwhelmingly huge, enough to engage more than half of the population in the coverage area. Regardless of the vast potentials the agricultural sector possesses, the industry endowment has not been fully harnessed. There has been a downturn in the late 1970s and figures have dropped significantly to 20% at the end of the 1990s. The decline in the agricultural sectors’ contribution is explained by the oil discovery in the 1970s. The 1970s outlined the period when oil was discovered in commercial quantity. This discovery has led to the neglect of the agricultural sector and more focus on the petroleum sector (oil sector). This in one way or the other turned Nigeria into an oil dependent and a monoculture economy.
All these contributed to low agricultural output thereby having a negative effect on the economy as a whole. Also, there is a gap in previous studies in explaining the effect of the agricultural sector on economic growth in Nigeria. This study aims to fill this gap.
1.3 Research questions
This research work therefore intends to answer the following questions:
- What is the impact of agricultural sector development on economic growth in Nigeria?
- What is the impact of commercial bank credit to agricultural sector on economic growth in Nigeria?
1.4 Objectives of the Study
The broad objective of this study will be to determine the impact of agricultural sector on economic growth of Nigeria.
Specific objectives of the study
(i). to determine the impact of agricultural sector development on economic growth in Nigeria.
(ii) To determine the impact of commercial bank credit to agricultural sector on economic growth in Nigeria.
1.5Research Hypotheses
For the purpose of this study, the following hypothesis will be tested;
H01: Agricultural sector development has no significant impact on Economic Growth in Nigeria.
H02: Commercial Banks Credit to Agricultural Sector has no Significant Impact on Economic Growth in Nigeria.
1.6 Significance of the Study
The significance of this study depends on the fact that with improved economy Nigeria stands to gain in its effects toward development. This work attempts to answer the question:
What is the relevance of agriculture in economic growth? The cause of agricultural backwardness and how the present state of our agricultural productivity will be improved. This will form the basis upon which suggestions and contributions will be made as to how the full potentials of agriculture can be harnessed. This work stands to benefit:
- Nigeria as a whole: The research work intends to bring firth ways to increase agricultural output both for the purpose of consumption and exportation which ultimately will bring an increased favorable balance of payment (BOP) for the nation.
- This work will be advantageous to schools (staffs and students) and will help them understand the importance of farming no matter how small the scale of production may be.
1.7 Scope and Limitations of the study
This research work focuses on the impact of agricultural development on the economic growth in Nigeria between the period of 1981 to 2015. There are some factors or constraints which hinder my achieving the whole intension of this work.These constraints among others include limited time of the study and inadequate finance.
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