TABLE OF CONTENTS
CHAPTER ONE
INTRODUCTION
1.1 Background of
Study
1.2 Problem
Statement
1.3 Research
Question
1.4 Objective of
the Study
1.5 Research
Hypothesis
1.6 Justification
of Study
CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction
2.1 Conceptual Clarification
2.1.1 Definition of
Small Scale Farmers
2.1.2 The Concept of Agricultural Credit
2.2 Sources of Agricultural credit
2.2.1 The Non-Institutional source and the
Institutional source:
2.3
Access to Credit and Agricultural
Productivity Linkage
2.4
Empirical
Studies
CHAPTER
THREE
METHODOLOGY
3.1 Study
Area
3.2 Sampling and Analytical Techniques
3.3 The
Empirical Tobit Model
3.4 The Impact Evaluation Framework:
Endogenous Switching Regression Model (ESRM)
3.5 Full
Information Maximum Likelihood (FIML)
3.6
Data Collection
CHAPTER 4
RESULTS AND DISCUSSIONS
4.1.
Villages Sampled
4.2 Distribution of Respondents according to
Socioeconomic Characteristics
4.3 Average Credit Obtained by Selected
Household Characteristics
4.3.1 Proportion that Demanded Credit for
Agricultural and Non-Agricultural Use
4.3.2 Distribution of Respondents According to
Amount of Loan obtained for Agricultural Production
4.3.3 Distribution of Respondents According to
Amount of Loan Obtained for Non-Agricultural Production
4.4 Average Variable Cost Structure of Cassava
Production
4.5 Test of Mean Differences in Socioeconomic/Demographic
Characteristics between Borrowers and Non-Borrowers
4.6 Estimation Result of the Tobit Model of
Amount of Credit Obtained
4.7 Full Information Maximum Likelihood
Estimates of the ESRM
CHAPTER
5
SUMMARY,
CONCLUSION, AND POLICY RECOMMENDATIONS
5.1
Summary
5.2 Conclusion and Recommendation
References
Appendix
1
Questionnaire
CHAPTER ONE
Nigeria
is blessed with abundant natural and human resources, but despite its
significant natural resources, majority of the citizens are living below the
poverty line. For instance according to WDI, (2015), an estimated 60% of
Nigerians live on less than US$1.25 per day. Nigeria was also ranked 91stout
of a total of 104 counties on the 2015 Global Hunger Index and 153rdout
of a total of 187countries on the 2012 UNDP Human Development Index.
Malnutrition and hunger which is linked to poverty have been ravaging most
developing countries and affecting their productive capacity. Classifying
Nigeria as one of the poorest countries testifies to our failure to achieve our
development policy as well as national food security. It once more awakened the
government to the realities on ground, that is, the need to achieve the first
sustainable development goal of no hunger before the year 2030.
Ifelodun
is the largest local government area in Kwara State with an estimated
population of about 206,042 km2 and an estimated total land area of about 3,435
km2 (NPC,2006; KWSMI, 2002). The area is located between latitude7°45’N and
9°30’E and longitude 2°30’E and 6°35’E. It is characterized by dry and wet season.
The annual rainfall ranges between 1000 and 1500 mm. Average temperatures
between 30°C and humidity range from 35 to 60%. The major source of livelihood
and occupation of the people in the area is farming. Farming is traditional in
nature with emphasis on the cultivation of crops such as sorghum, cassava, yam,
maize and melon (KWSMI, 2002; Mohammed, 2008). Cassava is one of the crops
majorly grown among farmers in the area.
World Bank (2012) estimates the population of
Nigerian to above 160 million people, the largest in Africa almost accounting
for 47% of West Africa’s total population. As the population increases, the
country’s demand for food increases, while the ability to produce food
diminishes because pressures from the growing population in form of
desertification, climate change and erosion are also impacting on the already
diminishing resources and further threatening food production.
Agricultural credit plays
an important role in agricultural development. Agricultural household models
suggest that farm credit is not only necessitated by the limitations of
self-finance, but also by uncertainty pertaining to the level of output and the
time lag between inputs and output(De Janvry and Sadoulet, 1995). Recent
studies show the growth rate of investment in agriculture is less than other
economic sector. Agricultural financing is one of the most important factors to
develop rural areas in developing countries. Payment of bank credit is a way of
financing. In fact, facilitation of access to credit can raise amount of
productive investement. Credit has a crucial role for elimination of farmer’s
financial constraints to invest in farm activities, increasing productivity and
improving technologies. Generally, credit accessibility is important for improvement
of quality and quantity of farm products so, that it can increase farmers
income and avoid from rural migration. On the other hand, some policy makers
believe that payment of credit with low interest rate to farmers can support
them against some results of development policies that threat their welfare
(Ghorbani, 2005). Therefore, with limited access to credit, the budget balance
becomes a constraint, where expenditures have to remain less or equal to the
sum of revenues during the period, accumulated savings and credit availability.
Hence, credit constraint limits the optimum production or consumption choices
(De Janvry and Sadoulet, 1995). In other words, if a producer faces an infinite
supply of liquidity at a given price, the production decisions will be
independent of consumption decisions. When credit is rationed, some borrowers
cannot obtain the amount of credit they desire at the prevailing interest rate,
nor can they secure more credit by offering a pay higher interest rate. In such
circumstances, liquidity can become a binding constraint on many farmers
operation. Facing such a situation, households have to choose how to invest and
what imputs to buy depending on the level of credit they have access to.
Recent theoretical and
empirical study in economics has established that credit markets in developing
countries work inefficiently due to a number of market imperfections. The
literature cites a number of market imperfections which lead some potential
borrowers to be rationed out of the credit market. These imperfections include;
·
Interest rate ceilings usually imposed by
the government
·
Monopoly power in credit markets often
exercised by informal lenders(Bell et al., 1997)
·
Large transaction costs incurred by
borrowers in applying for loans
·
Moral hazard problems(Carter 1998)
In
many case a number of these imperfections combine to ration farmers out of the
loan market. Zeller et al. (2001)
found that in Bangladesh credit access had a significant and strong effect on
both income and food consumption. In contrast, Diagne and Zeller (2001) found
that lower profits levels can come from a number of sources including lower
investments levels and misallocation of variable inputs. The literature
suggests that credit rationing can cause a misallocation of resources in farm
production. This misallocation of inputs can then cause the credit rationed
farmer to have lower profit levels than his unconstrained neighbor (Carter,
1989; Feder et al., 1990). Petrrick
(2004) indicated that access to subsidized credit has a statistically
significant role in determining investment behavior of behavior of farmers. In
various specifications of the credit-investment relationship, the average
marginal effect of credit on investment was a similar than one, which implies
that credit is partly used for purposes other than productive investment.
Ghorbani (1997) believes that because of high transaction costs and interests
rate, efficiency of formal credit payment to farmers in Mazandaran province of
Iran is low. Chizari and Zare (2000) showed the effect pf credit on
agricultural production is positive and significant. Regards to results of
rural credit literatutre, farmers with credut access problems will invest less
in capital assets and their land. Credit rationed farmers will not be able to
smooth their expenses over time implying that they will not make long-term
investments especially those which entail sunk costs.
Successive Nigerian
governments have embarked on different policies and strategies to achieve
increases in agricultural productivity. In view of the importance of cassava as
one of the major staple food crop particularly for the poor rural households in
Nigeria, for example, specifically, in 1999 the Federal Government of Nigeria
embarked on the Presidential Initiative on Cassava (Manihot esculenta)
Production. The main objective of this program was to achieve self-sufficiency
in cassava production and for export with a targeted output of about 150
million tons of cassava per annum. Despite the fact that many studies support
the hypothesis that access to credit increases the productivity and profit of
the farm households (Diagne and Zeller, 2001; Adesina and Djato, 1996; Hazarika
and Alwang; 2003; Foltz, 2004), couples with the fact that at farm level, the
production costs for cassava in Nigeria are high, relative to other countries
(Akinnagbe, 2010), this program adopted many strategies in order to achieve all
its stated objective, but access to credit was not included. Consequently,
after many years of investing massively in the program, the objective of the
program has not been met, thereby highlighting the positive correlation between
access to credit and agricultural productivity,
1.2 Problem Statement
Productivity is a condition related to the
available resources as input, and individuals` access to it. At the world food
conference, productivity is defined as a measure of efficiency of a person, machine,
factory, system etc., in converting inputs into useful outputs. Productivity is
computed by dividing average output per period by total costs incurred or
resources (capital, energy, material, personnel) consumed in that period.
It has being observed
that the agricultural sector is not doing well and it is the main supplier of
food in Nigeria. In Nigeria, however, agriculture is dominated by small scale
farmers (as can be seen in their small-scale farming activities) most of whom
are rural-based, with low level of education; poor access to useful information
and market and most importantly lack of access to credit finance.
Inaccessibility of credit by these farmers hinders their acquisition of the
required inputs to increase their output. Lack of these required inputs limit
agricultural development by reducing farmers’ output, expected income, savings
(needed for investment) and overall welfare of the small scale farmers in
Nigeria (Daveze, 2000).
Enduring lack of credit access faced by these
farmers have significant consequences on their productive ability, as well as,
technology adoption, food security, nutrition, health and welfare of the
smallholder farmers’ households (Eyo, 2008), But enduring Lack of credit access
faced by these farmers may or may not have significant consequences on the
productivity of farmers. Most especially small scale farmers. This is because
their other factors that may also influence productivity which may be of
significant effect on the productivity status of the respondent in the study
area. Increasing small scale farmers’ output for self-sufficiency, no doubt,
requires more use of inputs such as improved seedlings, fertilizers,
pesticides, land and labour and they all necessitate the use of credit
(Odoemenem & Obinne, 2010).
However, some empirical studies have revealed cases of
credit insufficiency among rural farmers in Nigeria (Deaton 1997; Udry 1990;
Zeller 1994; Idachaba, 2006; Adebayo and Adeola, 2008 and Ololade and Olagunju,
2013) and some empirical literature has also found that in rural areas of
developing countries, credit constraints have significant adverse effects on
farm output (Feder et al., 1990; Sial and Carter, 1996), farm investment
(Carter and Olinto, 2003), and farm profit (Carter, 1989). However, This Study
is conducted primarily to investigate the empirical assessment of the influence
of access to credit on outcome of farm production to provide information for
effective policy intervention that will improve farmer’s purchasing power to
have access to credit thereby increasing productivity to its barest minimum
·
What are the socio-economic characteristics
of the farmers in Ifelodun Local Government Area
of Kwara state?
·
What are the sources of credit in Ifelodun
Local Government Area of Kwara state?
·
Has access to credit affect productivity
of the farmers in Ifelodun Local Government Area of Kwara state?
The
specific objectives of the study are:
1.
Assess the socio economical
characteristics of the farmers and their household in Ifelodun Local Government
Area of Kwara state
2.
Examine the sources of credit available to
the farmers in Ifelodun Local Government Area of Kwara state
3.
Examine the effects of access credit on
farmers productivity in Ifelodun Local Government Area of Kwara state
The following null hypothesis will be
tested in this study;
·
Access to credit does not significantly
influence the productivity of small scale farmers in Ifelodun Local Government
Area of Kwara state
The
Empirical analysis of credit availability to small scale farmers and its
influence on the productivity most especially in the rural and urban household
is very important. Strong economic growth and development can only be achieved
when implementing programme(s) aimed at reducing to the barest minimum poverty
by increasing food productivity through the empowerment of people by increasing
access to factors of production, most especially credit (Oguntade and
Mafimisebi, 2009). It is therefore necessary that the influence of credit on
farmers productivity be well looked into as a reference point for economic
policies.
Having
a proper understanding of the different drivers of credit to small scale
Farming household, could help shed more light on how various sources of credit
(institutional and non-institutional sources) can re-arrange lending mechanisms
for the Good of the farmers in the region. This Analysis will enable the
federal government and most especially state and local government to estimate
the level of productivity of the study area and this will also enable them to
formulate policies directed at ensuring farmers have access to credit thereby
increasing Agricultural development amongst small-scale.
Essentially, the study
attempts to extend literature on small scale agriculture financing in the rural
region. Understanding the different drivers of credit to small scale farming
households, could help illuminate how financial institutions can rearrange
lending mechanisms in order to target vulnerable farmers in the rural region.
The outcome of this research will provide a platform form for decisions
involving the rural areas using Ifelodun local government as a case study and
the betterment of the life of its impoverished citizenry who are grossly
affected by the grave economic situation in the area. It is intended that at the end of this study,
it will serve as a guide and reference source to researchers; government,
development planners and all others interested in promoting agricultural
productivity in Nigeria and the world at large. It will add to the body of
existing knowledge with respect to farmer’s productivity and credit
accessibility in the study area; and provide data for further study.
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