EFFECT OF LIQUIDITY CONSTRAINT ON PERFORMANCE AMONG SELECTED SMALLHOLDER AGRIBUSINESS ENTREPRENEURS

ABSTRACT

This study analysed the effect of liquidity constraint on performance among selected smallholder agribusiness entrepreneurs in Abia State, Nigeria. It specifically examined the socio-economic characteristics of the selected smallholder agribusiness entrepreneurs in Abia Stae, examined the cost of funds available to them, analysed performance among the entrepreneurs, examined the effect of liquidity constraint and other factors on their performance, the factors militating against access to liquidity among the respondents, and the extent liquidity constraint affected their performance in Abia State. Primary data were used. The study made use of a multistage sampling technique in selecting respondents in which the 3 agricultural zones of the State were selected, 1 local government area was randomly selected from each of the agricultural zones of the State, and 25 agribusiness entrepreneurs were randomly selected from each of the LGAs to give a sample size of 75 respondents. Regrettably, out of the 75 questionnaire administered and retrieved from the respondents, 73 were found useful and used for the analysis. Various descriptive and inferential analytical tools such as financial ratios, regression analysis were used in data analysis. Results showed that most of the smallholder agribusiness entrepreneurs in Abia State, Nigeria were single (53.42%), males (52.05%) with a  mean age of 42 years, who ventured mostly into poultry business (24.66%), fish farming (20.55%), crops production (12.33%) and produce sell (12.33%). They funded their business through debt financing (100.0%), equity (98.63%) and lease (89.04%). They enhanced their enterprise through distribution channels (49.32%) and supply chain (27.40%), and increased their performance through market shares (43.84%) and sales volume (31.51). On the cost of funds that affected their enterprises, debt financing had the highest total cost of (N1,176,000), followed by equity financing (N1,062,600). Smallholder agribusiness entrepreneurship in the area was profitable given a return on investment of 1.22 per annum. The Ordinary Least Square regression result on effect of liquidity constraint and other factors on the performance of the entrepreneurs in the study area revealed that the exponential functional form gave the best fit result based on the magnitude of the coefficient of multiple determination (0.869), the number of significant variables, the agreement of the signs borne by the coefficients of the variables as well as the significance of F-ratio (7.59***). Liquidity constraint (1.0%), sex (1.0%), cost of operations (1.0%) and cost of funds (1.0%) negatively affected the performance of the respondents, while education (1.0%) and experience (1.0%) positively affected it. Insufficient land ( =4.32), insufficient credit facilities ( =4.23), among others, were the factors militating against access to liquidity by the respondents, while costs of transaction ( =4.12) and size of market ( =3.59) were among the factors that revealed the extent to which liquidity constraints affected the performance of the entrepreneurs. It was recommended that government and non-governmental organizations should intimate and provide smallholder agribusiness entrepreneurs with information and trainings on liquidity management, and support the entrepreneurship financially.

TABLE OF CONTENTS

LIST OF TABLES

CHAPTER 1

INTRODUCTION

1.1       BACKGROUND INFORMATION

Agriculture is the economic stronghold for majority (70.0%) of individuals in Nigeria. It contributes about 45.0 per cent of GDP and employs nearly two-thirds of the country’s total labour force. It is the source of livelihood for about 90.0 per cent of the population and provides raw materials for agro-allied industries (Ogwumike and Akinnibosun, 2013). Nigeria’s huge agricultural resource base offers great potential for growth not only for the smallholder sector but the entire economy. The performance of the Nigeria agricultural sector has attracted considerable attention since independence because of its potentials for rapid economic growth. The sector has the capacity to reduce poverty, diseases and ignorance through wealth creation and employment generation (Asa and Obinaju, 2014).

Agribusiness involves the various business enterprises that get the maximum or their entire revenues from agriculture (Nze, 2021). Agribusiness enterprise may occur in farming, manufacturing and processing and/or the packaging and distribution of products. ‘Agribusiness’ is the short form of ‘agricultural businesses’ (Mbanasor and Ijere, 2000). It entails the transformation of raw agricultural outputs into other forms of products with higher value and diversified utilities (Mbanasor, Nwachukwu and Egwu, 2010). Agribusiness includes “all participants in a commodity vertical structure, from farm suppliers, farmers, assemblers, processors, and distributors to ultimate domestic and international consumers. The system also includes coordinating machinery that holds it together, including markets, future markets, contractual integration, domestic and international farm cooperatives, governmental programs, marketing boards, trade associations, voluntary agency programs, and a variety of private, cooperative, and governmental joint ventures and long-term agreements, arrangements and partnership” (Ahmad, et al., 2020).

Smallholder agribusiness entrepreneur are simply the various individuals that participate in total agricultural activities value chain at the lower scale (Nze, 2021). They take the risks involved in effective utilization of human and material resources in a unique way so as to take advantage of the opportunity identified in their close environment through production of goods and services (Emerhirhi et al., 2017). Smallholder agribusiness entrepreneurs are innovators who recognize and seize opportunities, convert the opportunities into workable ideas, add values, efforts, money and skills and assume the risk of competition to actualize new ideas and claim rewards (Esiobu et al., 2015).

Most smallholder agribusiness enterprises are the Small and Medium Enterprises (SMEs) and they are the main driving forces of economic growth and job creation that have a special importance in developing and emerging economies. They have aptly been referred to as the engine of growth and catalysts for socioeconomic transformation of any country (Ahmad, et al., 2020).  According to Chukwu (2023), smallholder agribusiness enterprises contribute 48% of national GDP, account for 96% of agencies and 84% of employment in Nigeria, form more than 95% of all enterprises in the world.

Every segment of agricultural production requires the availability of adequate liquidity, since capital determines access to all other resources on which smallholder agribusiness entrepreneurs and farmers depend (Oboh, 2000). Liquidity is a very crucial phenomenon for smooth operation of agribusinesses. In fact, growth, development and survival of agribusinesses depend on liquidity. It has different meanings and connotations to different parties and organizations which makes its definition a very difficult task. Notwithstanding, frantic efforts are being made by the concerned parties to define liquidity with respects to their organizations. In a specific term, liquidity can be described as agribusiness enterprises’ ability to meet the cash demand of its policy and contract that it holds with minimal or no loss (Nykvist, 2010). The liquidity profile of agribusinesses is a function of its assets and liabilities (Chorafas, 2017).

Liquidity refers to the ability of agribusiness enterprise to meet financial obligations as they become due in the ordinary course of business. Liquidity relates to cash flow and short-term risk. It is a cornerstone for maintaining efficiency of an enterprise and for solvency (Lánský and Mareš, 2017). Liquidity of a firm is a key determinant of the firm’s financial performance. It is the degree to which an asset or security can quickly be bought or sold in the market at a price reflecting its intrinsic value; in other words, the ease of converting it to cash or working capital. Liquidity determines whether a company is solvent or insolvent. It is a vital factor in agribusiness operation. For the very survival of any agribusiness enterprise, the enterprise should have requisite degree of liquidity. It should neither be excessive nor inadequate.

1.2       PROBLEM STATEMENT

Despite the potentials and enormous contributions of agriculture to the Nigerian economy over the years, the sector has slipped into a systemic decline, particularly in the past five decades since the petroleum industry replaced the sector as the main earner of government revenue and foreign exchange earnings (Innocent-Ene et al., 2021). This systemic decline in the performance of this sector is as a result of some constraints, among which is poor technologies, limited adoption of research findings, land tenure system, inadequate storage facilities, poor irrigation systems, bad roads to market, over reliance on rain-fed agriculture, low productivity due to poor planting materials, low fertilizer application, societal attitudes towards agriculture and weak agricultural extension system and liquidity constraint (Federal Republic of Nigeria (2004); Food and Agriculture Organization, 2019). The inability of smallholder agribusiness enterprise to access adequate finance is a great cause for concern. Adetiloye (2012) in their review on constraints of agribusiness enterprise argues that the problem of finance ranks first, thereby compounding other problems. Hence there is a need to ensure adequate and efficient management of liquid.

The contribution of smallholder agribusiness enterprise to Nigeria’s economic development can be realized if agribusiness enterprises are linked to good financing in the agricultural sector (Pandey 2015; Enyi 2016). In recent times, there has been high demand for high-value agricultural products, along with more stringent food safety and quality requirements and the emergence of agribusiness integration. All these changes forebode the potential exclusion of some agribusiness entrepreneurs and producers from the growing markets. Bienabe, et al., (2004) contended that agriculture is becoming increasingly integrated and agribusiness firms are often disadvantaged, and actions must be taken to help them draw funds from their integration into markets.

Most smallholder agribusiness entrepreneurs in most parts of Nigeria and other countries have barriers to access to liquidity/finance. They face serious challenges such as liquidity setbacks, discriminations, problems associated with government regulation, tax and government levies, poor access to justice, lack of education, among others, due to smaller markets, difficulties in exploiting technology, insufficient managerial capabilities, low productivity and regulatory burdens in their business environment (Enyi, 2016). They face challenges that hinder them from attaining sufficient liquidity/finance, thus, lack trainings and management capacities to manage the business resources effectively.

More so, the activities of smallholder agribusiness entrepreneurs are bedevilled by problems such as poor infrastructure, inconsistency in government policies, poor support (business development services), access to the market, multiple taxation and obsolete technology (Maxwell, 2015; Enyi, 2016). The epileptic growth of smallholder agribusiness entrepreneurs in Abia State cannot just be attributed to the problems already stated, consequently, agribusiness entrepreneurs tend to hold their wealth in non-liquid assets such as livestock and household goods, risking loss through theft, fire or other perils. Insurance and price hedging instruments are almost non-existent because markets for these are missing or severely under-developed.

Several studies have such as “microfinance credit scheme and poverty reduction among low-income workers in Nigeria (Agba et al., 2014), “access to finance and growth of small and medium scale enterprises in the ho municipality of Ghana” (Ahiawodzi et al., 2012), and “Socio- economic impact of microfinance bank on the standard of living of commercial motor cycle riders in Ilorin west LGA of Kwara State, Nigeria” (Ajagba, and Bolaji, 2013), among others, have indicated how agribusiness enterprises can be linked to proper financing, but they have failed to address the issue of how agribusiness can be empowered to benefit from high-value liquidity management. The essence of the problem lies in identifying those factors affecting proper liquidity management of the agribusiness entrepreneurs in Abia State. It is worthwhile to know that there has been no study on effect of liquidity constraints on performance of smallholder agribusiness entrepreneurs in Abia State, Nigeria. However, Onwumere, et al., (2015) examined the effect of liquidity management on the performance of agribusiness sector Nigeria (1978-2013). But they did not consider the effect of liquidity constraints on performance of agribusiness entrepreneurs.  To fill this gap, this study analysed the factors constraining liquidity among smallholder agribusiness entrepreneurs in Abia State, Nigeria.

1.3        RESEARCH QUESTIONS

This study addressed the following research question,

      i.         What are the Socio-economic characteristics of the selected smallholder agribusiness entrepreneurs in Abia Stae?

     ii.         What are the cost of funds available to the smallholder agribusiness entrepreneurs?

   iii.         What is the performance among the selected smallholder agribusiness entrepreneurs in the study area?

   iv.         What is the effect of liquidity constraints and other factors on performance among the entrepreneurs?

     v.         What are the factors militating against access to liquidity among the respondents? and

   vi.         What is the extent liquidity constraints affect the smallholder agribusiness entrepreneur’s performance in Abia State?

1.4       OBJECTIVES OF THE STUDY

The broad objectives of this study is to analyse the effects of liquidity constraint on performance among selected smallholder agribusiness entrepreneurs in Abia State, Nigeria. The specific objectives were to;

      i.         describe the Socio-economic characteristics of the selected smallholder agribusiness entrepreneurs in Abia Stae;

     ii.         examine the cost of funds available to the smallholder agribusiness entrepreneurs;

   iii.         analyse performance among the selected smallholder agribusiness entrepreneurs in the study area;

   iv.         examine the effect of liquidity constraints and other factors on performance among the entrepreneurs;

     v.         examine the factors militating against access to liquidity among the respondents, and

   vi.         examine the extent liquidity constraints affect the smallholder agribusiness entrepreneur’s performance in Abia State.

1.5       RESEARCH   HYPOTHESES

In the course of this study, the hypotheses below were tested.

Ho₁: The performance of the smallholder agribusiness entrepreneurs is positively influenced by years of education, business experience, and negatively influenced by sex, age, liquidity constraints, cost of operation (tax and commodity costs), and cost of funds.

Ho_2: liquidity constraints do not affect smallholder agribusiness entrepreneur’s performance in Abia State.

1.6       JUSTIFICATION OF THE STUDY.

The relevance of agribusiness firms to the national economy can no longer but be overemphasized. The findings of this study if properly applied hopes to solve liquidity constraints of agribusiness firms in Abia State through adequate funding of agribusiness entrepreneurs.

This study is hoped to increase the level of liquidity available to agribusiness firms in Abia State by reviewing the factors constraining liquidity of agribusiness entrepreneurs in the study area. Also by giving better understanding of these factors as solution to them will be provided. The government will benefit from the research work since it is geared toward increasing liquidity available to agribusiness firms, thereby, increasing the economic performance of these firms. It is hoped to help government to offer more liquidity to the firms as the constraints has been reviewed and appropriate measures taken to mitigate these constraints by providing the required policies to facilitate the desired growth of the agribusiness sector.

1.7    LIMITATIONS OF THE STUDY

In carrying out this research work, certain limitations were encountered among which included:

1.     There were not enough time and finance for the researcher to go through all the local government areas and villages in the study area, as a result, the study was limited to only three Local Government Areas in the study area;

2.     Poor road networks in the research area adversely affected the process of data collection, as a result, the research team had to trek some distances under the scourging sun to reach the respondents. Furthermore, much time, money and energy were spent travelling within the study area.

3.     A number of the respondents were reluctant to accept and fill the questionnaire for reasons as some thought it was to assess them for tax purpose and for other reasons they were afraid of. Some of them were also afraid to disclose some information on their smallholder agribusiness entrepreneurship and this compelled the research team to resort into convincing the respondents;

4.     A number of the respondents were unable to communicate in English language, while some other spoke in dialects that were not easily understood by some members of the research team, but the presence of the enumerators from the study area helped in this case;

5.     The retrieval of completed questionnaire was not easy too, as the respondents complained of busy schedules that delayed their filling the forms, but for constant persuasion, they were able to comply.

Buyers has the right to create dispute within seven (7) days of purchase for 100% refund request when you experience issue with the file received. 

Dispute can only be created when you receive a corrupt file, a wrong file or irregularities in the table of contents and content of the file you received. 

ProjectShelve.com shall either provide the appropriate file within 48hrs or send refund excluding your bank transaction charges. Term and Conditions are applied.

Buyers are expected to confirm that the material you are paying for is available on our website ProjectShelve.com and you have selected the right material, you have also gone through the preliminary pages and it interests you before payment. DO NOT MAKE BANK PAYMENT IF YOUR TOPIC IS NOT ON THE WEBSITE.

In case of payment for a material not available on ProjectShelve.com, the management of ProjectShelve.com has the right to keep your money until you send a topic that is available on our website within 48 hours.

You cannot change topic after receiving material of the topic you ordered and paid for.