CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
With 75% of the world’s poor in rural areas, most of them are dependent on farming, agriculture must be part of world economic growth, poverty reduction, and environmental sustainability (UNDP, 2012). Agriculture is critical to achieving global poverty reduction targets and it is still the single most important productive sector in most low income countries, often in terms of its share of Gross Domestic Product and almost always in terms of the number of people it employs (IDA, 2009). In countries where the share of agriculture in overall employment is large, broad-based growth in agricultural incomes is essential to stimulate growth in the overall economy, including the non-farm sectors selling to rural people. Hence, the ability of agriculture to generate overall GDP growth and its comparative advantage in reducing poverty will vary from country to country (FAO, 2012). The majority of the poor and food insecure in Africa live in rural areas, and most of them depend on agriculture for their livelihoods. To support broad-based poverty reduction and food security in Africa, smallholder agriculture must be a central investment focus (Garvelink et al., 2012ViThe sheer size of agriculture in most African economies suggests that strategies designed to promote the early stages of economic growth cannot ignore agriculture. The promotion of the rural economy in a sustainable way has the potential of increasing employment opportunities in rural areas, reducing regional income disparities, stemming pre-mature rural-urban migration, and ultimately reducing poverty at its very. source (Anriquez and Stamoulis, 2007). The potential of agriculture to generate a more pro-poor growth process depends on the creation of new market opportunities that most benefit the rural poor (Hanjra and Culas, 2011). Nigeria is a vast agricultural country “endowed with substantial natural resources” which include: 68 million hectares of arable land; fresh water resources covering about 12 million hectares, 960 kilometres of coastline and an ecological diversity which enables the country to produce a wide variety of crops and livestock, forestry and fisheries products (Arokoyo, 2012). Poverty in Nigeria is concentrated in rural areas, which are home to more than 70% of the nation’s poor.
Development indicators for rural areas lag behind those for urban areas: incomes are lower, infant mortality rates are higher, life expectancy is shorter, illiteracy is more widespread, malnutrition is more prevalent, and greater proportions of people lack access to clean water and improved sanitation services (Tsigas and Ehui, 2006).
One sector that has a critical role to play in poverty reduction in Nigeria is the agriculture sector as over 40% of the GDP comes from the sector and it employs about 60% of the working population (Nwafor et al., 2011). However, the agriculture sector has the highest poverty incidence and tackling poverty entails tackling agricultural underdevelopment. Economic growth in Nigeria has largely been accounted for by resilient agricultural growth associated with performance in four constituent sub-sectors: crops, livestock, fisheries and forestry (Eboh et al., 2012). While the agricultural sector, may have in recent years contributed significantly to improved growth performance in Nigeria, its actual contribution appears to be much short of overall potential. Although several studies have outlined the theoretical relationship between agriculture and economic growth, disagreements still persist (Awokuse, 2009). The causal dynamics between agriculture and economic growth is an empirical question worthy of further investigation. As Timmer (2005) noted, part of the controversy of the role of agriculture in development stems from the fact that structural transformation is a general equilibrium process that cannot be explained by looking at agriculture alone. The issue of how and under what conditions agriculture is a driving force of rural growth has received scant attention or has given mixed messages including in the position of major multilateral financing institutions (Anriquez et al., 2003). Despite the myriads of existing literature on the between agriculture and economic growth across the globe and in particular sub-Saharan Africa, there exists a relative dearth of empirical information on the relationship between agriculture and economic growth in Nigeria with a bigger picture on rural poverty. Therefore, this research was designed to fill the Agricultural Production and Economic Growth in Nigeria existing research gap by providing empirical information on agriculture-economic growth nexus and its implication for poverty reduction.
In a typical African developing economy, agriculture continues to assume a pivotal role in the drive towards achieving sustained growth and development. Available statistics from world trade organization, (WTO) show that agriculture accounts for more than one third of export earnings of 50 developing countries. The sector also plays an important role in rural development of most developing economy; employing up to 80 percent of the rural population. Agricultural product sustains the growing population, stimulates growth and development in the agro allied industry (Omunukwe, 2007:28). Without doubt, it is pertinent to note that agricultural production is vital to a nation’s economic growth because it provides human being with some of their basic needs.
In line with the World Development indicators Database (2006) WDI, Ajie et al (2008:315) is of the view that the economy of several West African countries is sustained mostly by Agriculture. Apart from Nigeria, most of the West African Countries depend on agriculture for their export trade constituting 75% of their exports. In order to achieve increased foreign exchange and provide food for its teeming population, agricultural policies are usually put in place. Moro (1994:58) adds that for any agricultural policy to be meaningful it has to be a function of beliefs, values, facts and weights attached to them a t a particular point in time.
Agricultural policy involves two related but separate components, these are: activities which directly affect the allocation of resources (the qualitative elements of policy) and those which deal with the institutional framework within which efforts at resources allocation take place (the qualitative elements of a policy).
Indeed, more often than not, agricultural activities are usually concentrated in the less developed rural areas where there is a critical need for transformation and socio-economic development, Stewart (2000:8). The agricultural sector in Nigeria has the potentials to shape the landscape, provide environmental benefits such as land conservation, guarantee the sustainable management of renewable natural resources preserves biodiversity and contribute to the viability of many rural areas, Hunbert (2000:123). In fact, through its different spheres of activities at both the micro and macro level, the agricultural sector is strategically positioned to have a high multiplier effect on the nation’s quests for socio-economic and industrial development. The Nigerian economy, during the first decade after independence could reasonably be described as an agricultural economy because agricultural production served as the engine of growth of the overall economy. During this period, majority of the nation’s export production were purely agricultural goods, ranging from cocoa to timbers, palm oil, cottons, groundnut, rubber, plantains, cassava, hide and skin etc. This was also due to the vats and richly endowed land and rich agricultural resources, Ogen (2003:115).
In 1990, 82 million hectares out of Nigeria’s total land area of about 91 million hectares were found to be arable. Much of this land was farmed under the bush fallow system; whereby land is left fallow for a period of time to allow natural regeneration of soil fertility. Thus 18 million hectares were classified as permanent pasture, but had the potential to support crops. Most of the 20 million hectares covered by forests and wood lands are believed to have agricultural potentials (Olomola, 2007:16), The Nigeria’s agricultural product fall into two main groups: Food crops produced for home consumption and exports. The most important food crops are yams and cassava in the south and Sorghum and millet in the north. Cocoa is the leading non-oil foreign exchange earner but the dominance of small holders and lack of farm labours due to urbanization hold back production. In 1991, Nigerian Agricultural production was 145,000 tons of cocoa beans, but has the potentials for over 300,000 per year while rubber is the second larger non-oil foreign exchange earner, (Olomola, 2007:18).
However, the agricultural production since independence has suffered a severe neglect due to the oil boom in Nigeria in the 1970s. This lead to the downward trend of the production of agricultural product such that its contribution to Gross Domestic Product (GDP) has been on a decline from 61.50% in 1963/1964 to 39.9% in 1970/1971. 20.0% in 1988, 32.1% in 2001 and less than 30% ever since, (CBN, 2004). The continuous neglect can also be seen in such that, out of 82 million arable hectares in the country, about 41 million hectares are being utilized of which most are cultivated using crude and outdated tools which is tedious in a mechanized century. Ever since then, Nigeria has been witnessing extreme poverty and insufficiency of basic food items. Historically, the root of the crisis in Nigeria stems from the neglect of agricultural production now accounts for less than 5% of Nigeria’s GDP (Olagbagu and Folola, 1996:465).
It is worth to note here, that despite the discovery of oil and the huge revenue it generates, most Nigerians depends directly on agriculture for livelihood, World Bank (108b); Christiansen and Demery (2007:68); Ravallion and Chen (2007:118) and its continuous decline has been disastrous to the economy at large. It is against this backdrop that it becomes necessary to investigate the impact of agricultural production on economic development of Nigeria.
1.2 Statement of The Problem
Even with Nigeria’s rich agricultural resource endowment, there have been fluctuations in Agricultural sector output and gradual declines in agriculture’s contributions to the nation’s economy (Manyong, 2005). Agricultural sector’s share of GDP increased from 28% in 1985 to 32% in 1988, dropped to 31% in 1989, rose again to 37% in 1990 but fell significantly to 24% in 1992 and increased to 37% in 1994. It was 32% in 1996 and rose to 40% in 1998, dropped again to 27% in 2000, increased to 37% and fell to 31% in 2002 and 2006 respectively. The percentage contribution of the agricultural sector to GDP fell persistently from 0.37 in 2009 to 0.22 in 2012 and to 0.20 in 2014 (CBN, 2014). The decline in the agricultural sector was largely due to rise in crude oil revenue in the early 1970s. Less than 40% of the Nigeria’s cultivable agricultural land is under cultivation, (FMARD, 2012). 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. The inability to capture the financial services requirements of farmers and agribusiness owners who constitute about 70 percent of the population is inclusive (Lawal, 2011). Also. The federal government expenditure on agriculture as a ratio of total federal government expenditure pictures a gloomy future for the sector’s development in the country. Total expenditure on agriculture, as percentages of overall expenditure, fluctuated from 4.57 percent in the 1986-1993 periods through an average of 4.51 percent per annum in 1994-1998 to 3.53 percent in 1999-2005, 1.12 percent in 2006-2010 and 0.76 per cent in 2011-2014(CBN, 2014). When compared to other sectors like mining, manufacturing, education, and health, agriculture virtually received
the least annual allocations that are often inadequate to put the sector on sustainable grounds. The low level of the allocations to the agricultural sector is in contrast with the recommendation of International Food Policy Research Institute (IFPRI) (2016) that African governments should invest up to10% of their national budget in agriculture and give priority to agricultural policy in other to solve food crisis in their countries. This paper therefore examined the impact of agriculture on economic growth in Nigeria.
However, literatures are abound on the role of agriculture in economic development and poverty reduction (Atolaye 1997:88) with soaring increase in the level of poverty, especially in the rural areas, and the apparent decline in the role of agriculture, when compared to the 1960s, the current rate of poverty reduction is maintained, poverty incidence would reduce to 43 percent as opposed to 21.4 percent by 2015 (DEID, 2015). From the foregoing there had been growing concerns about the state of agricultural sector by scholar and policy makers in recent years. There is an urgent need for the government to resuscitate the agricultural sector, perhaps restoring it back to its past glory.
1.3 Objectives of The Study
The broad objective of the study is to evaluate the impact of agricultural production on economic growth in Nigeria between 1980 and 2015.
Specific objectives of this study are to:
- Ascertain the impact made by agricultural production so far on the Nigeria’s economy.
- Identify the constraints militating against the agricultural production in Nigeria.
- To evaluate the effectiveness of various agricultural programmes adopted in Nigeria to promote economic growth.
- Proffer solutions towards improving the agricultural sector in Nigeria.
1.4 Research Questions
The following research questions were formulated to guide the study.
- To what extent has agricultural production made a significant impact on Nigeria’s economic growth?
- What is the contribution of bank loans to the agricultural sector on Nigeria’s economic growth?
- What is the impact of interest rate and exchange rate on the Nigerian economy?
- What are the constraints militating against effective agricultural production in Nigeria?
- What are the measures to be adopted in improving the agricultural sector in Nigeria?
1.5 Research Hypotheses
The following research hypotheses were formulated and subjected to
empirical validation.
H01: Agricultural production does not have any significant impact on Nigeria
economic growth.
H02: There is no significant relationship between bank loans to agriculture and the economic growth of Nigeria.
Ho3: Interest rate does not have any significant impact on Nigeria’s economic growth.
Ho4: There is no significant relationship between exchange rate and
economic growth in Nigeria
1.6 Significance Of The Study
The significance of the study presents the value or contribution which the research will make to the existing knowledge.
The study will be of immense benefit in ascertaining the progress so far made by the government in improving Nigerian economy through agriculture. On the other hand, the study will assist in unveiling the challenges or factors militating against effective implementation of government policies and programmes on agriculture and will make useful suggestions towards ensuring the achievement of goals of such agricultural policies and programmes.
This study is considered significant because it will contribute in providing the decision makers and other key actors in the government with the road-maps that will necessitate prompt, responsive and efficient policy making in Nigerian agricultural sector. It will also suggest the panacea through which frequent failures in Nigerian agricultural sector can be effectively tackled.
This study also has the potentials of contributing immensely to the existing body of literature on this subject matter. Literature on the assessing the impact of agricultural on Nigerian economy are richly available but few have been able to justify the current poor state of agriculture in Nigeria. In other words, this research will serve the academia as a useful and veritable bibliographical reference which will stimulate research for other related studies in relation to the agriculture sector and its impact in Nigeria economy.
1.7 Scope Of The Study
This research is limited to agricultural production and loans to the agricultural sector between 1980-2015, and at the national level only. Two other variables included here is control variables are exchange rate and inflation rate.
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