ABSTRACT
The study analyzed the effect of selected agricultural financing policies on crop production in Nigeria from the period 1980- 2016. Specifically the study analyzed the trend in growth rates of selected agricultural financing policies such as the Agricultural Credit Guarantee Scheme Fund (ACGSF), Agricultural Development Programme (ADP), Bank of Agriculture (BOA), and crop output; established whether there is stagnation, acceleration and deceleration on crop production as well as in the funds provided by the selected agricultural financing policies, compared that mean difference in the value of funds provided for crop production under ACGSF, BOA and ADP; examined the form of causality between the selected agricultural financing policies and crop production and determined the long-run and short-run effects of selected agricultural financing policies on crop production within the reference period. Time series data were used for the study. Data were analyzed using trend analysis, z- test, Granger causality test and Autoregressive Distributive Lag (ARDL) model. The study showed that crop output and financing provided under ACGSF, BOA and ADP increased overtime within the reference period having assumed R2values of 0.880, 0.926, 0.884 and 0.897 with all being significant at (p<0.01) level respectively. The study revealed a compound growth of crop output at 5.3% per annum, 1.8%per annum for Agricultural Credit Guarantee Scheme Fund (ACGSF), 2.3%per annum for Bank of Agriculture (BOA) and 1.2% per annum for Agricultural Development Programme (ADP). The study revealed that growth of crop output and those of selected financing polices were slow. The study revealed that the rate of growth of Crop output, and financing provided under Agricultural Credit Guarantee Scheme Fund (ACGSF) and Agricultural Development Programme (ADP) decelerated within the period under review. Bank of Agriculture disbursed more funds for crop production than ACGSF and ADP during the period under review. The finding showed that the variable of crop output and Agricultural Credit Guarantee Scheme Fund (ACGSF), Bank of Agriculture (BOA) and Agricultural Development Programme (ADP) maintained a unidirectional relationship throughout the period under study. Agricultural Credit Guarantee Scheme Fund, Agricultural Development Program, real exchange rate, food importation and government policy on interest rate boosted and enhanced crop production output. Also, area of land under cultivation, Agricultural Credit Guarantee Scheme Fund, Bank of Agriculture, Agricultural Development Programme, real exchange rate and government policy on interest rate affected crop output positively on the long run. Area of land under cultivation, AGCGSF and BOA significantly influenced crop output in the short run. It is therefore recommended that government should enhance growth in crop output by ensuring timely allocation of funds through the selected financing schemes, institutions and programmes to the agricultural sector. Government should also sustain agricultural financing polices schemes, programmes and institutions so as to continue to increase crop production and guarantee food security in the country.
TABLE OF CONTENT
Title
Page i
Declaration ii
Certification
iii
Dedication
iv
Acknowledgements v
Table
of Contents vii
List of
Tables xi
Abstract
xiv
CHAPTER 1: INTRODUCTION
1.1 Background
to the Study 1
1.2 Statement
of Problem 5
1.3 Objectives of the Study 8
1.4 Research Hypotheses 9
1.6 Justification of the Study 10
1.7 Scope of Study 11
CHAPTER
2: REVIEW OF RELATED LITERATURE
2.1 Conceptual
Framework 12
2.1.1 Concept of agricultural policy 12
2.1.2 Concept of agricultural finance 13
2.1.3 Concept of agricultural financing
policy 14
2.1.4 Concept of crop production 14
2.1.5 Previous studies on Nigeria
agriculture 15
2.1.6 Review of agricultural financing structure in
Nigeria. 16
2.1.7 Review of the Nigerian
agricultural policy 19
2.1.8 Overview of selected Nigerian agricultural
financing policies 20
2.1.9 Problems of agricultural policy
implementation 26
2.1.10 Financial implication in the agriculture
sector 27
2.1.11 Overview of financial instruments for the
agricultural sector 28
2.1.12 Review of agricultural financial policies
around the globe 31
2.2 Theoretical Review 34
2.2.1 Financing theories 34
2.2.1.1 Theory of investment and financing
decisions 34
2.2.1.2 Two-fund theorem 37
2.2.1.3 Theory of financial intermediation 38
2.2.2 Theories of production 39
2.3 Empirical Studies 42
2.4 Analytical Framework of the Study 44
2.4.1 Stationarity properties of time series data 44
2.4.2 Basic unit root theory 45
2.4.3 Testing for serial correlation 48
2.4.4 Comparison of the mean variation between two
population samples 49
2.4.5 Trend analysis model 50
2.4.6 Granger causality test 53
2.4.7 Autoregressive distributed lags (ARDL)
approach 54
CHAPTER 3: METHODOLOGY
3.1 Study
Area 59
3.2 Method of Data Collection 60
3.3 Analytical Techniques 61
3.4 Model Specification 62
3.5 Diagnostic Test: Stationary Properties of the Variables used
in the Analysis 70
CHAPTER 4: RESULTS AND DISCUSSION
4.1 Trend in Growth
Rate of Agricultural Crop Output, Agricultural Credit
Guarantee Scheme Fund, Bank of Agriculture Fund
and Agricultural Development Programme Fund 73
4.2 Establishment of Acceleration, Deceleration
or Stagnation in Agricultural Crop
Outputs, Agricultural Credit Guarantee Scheme Fund (ACGSF), Bank of Agriculture (BOA) and Agricultural
Development Programme (ADP) 79
4.3 Variability in the Mean
Value of Funds Provided For Crop Production Under Agricultural Schemes (ACGSF),
Institutions (Boa) and Programme (ADP) 81
4.4 Form of Causality between the Selected Agricultural
Financing Policies and Crop Production In Nigeria 83
4.5 Effect of Agricultural Financing Policies on Crop
Production
85
4.6
Hypotheses Testing 97
CHAPTER 5;
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1
Summary
102
5.2 Conclusion 107
5.3
Recommendations 108
References
LIST OF TABLES
3.1 Result of unit root test for logged variables with intercept used in the
analysis 71
3.2 Result of unit
root test for variables with intercept and deterministic trend used in the analysis 72
4.1 Estimated trend equations for crop
output, ACGSF, BOA fund and ADP fund (1980 –2016) 73
4.2
Compound growth rates of the Agricultural crop
output, ACGSF, BOA and ADP in Nigeria (1980-2016) 75
4.3 Doubling time (Years) of the compound
growth rates of Agricultural crop output, ACGSF, BOA and ADP in
Nigeria (1980 -2016) 78
4.4 Estimated quadratic equations in time variables for crop
Output, ACGSF, BOA and ADP
in Nigeria (1980 -2016) 79
4.5 Test of significance of the difference
between the mean value of funds provided for crop production under ACGSF, BOA, and ADP in Nigeria (1980 – 2016)
81
4.6
Granger causality test between the
selected agricultural financing policies and crop
production in Nigeria 84
4.7 Unparameterized estimation of the effects of selected agricultural financing policies on crop
production in Nigeria (1980 – 2016) 86
4.8 ARDL estimation of the
long-run and short-run effects of agricultural financing polices on crop production in Nigeria (1980 – 2016) 92
4.9 Apriori
testing for hypothesis one
97
4.10: Apriori
testing for hypothesis two 97
4.11: Apriori
testing for hypothesis three 98
4.12: Apriori
testing for hypothesis four
99
4.13: Apriori testing for long-run influence
of agricultural financing policies on crop production 100
4.14: Apriori
testing for short-run influence of agricultural financing policies on crop production 101
CHAPTER
1
INTRODUCTION
1.1BACKGROUND TO THE STUDY
The
relevance of the agriculture in the development and sustainability of the Nigerian
economy remained highly placed as a key factor in the drive up and sustenance
of the Nation’s economy from recession. The relevance of agriculture is seen in
its immense contribution towards the growth and sustainability of the Nigeria
economy through provision of food for the increasing population which account
for 70% of total employment, 40% of total exports, and one-third of Gross Domestic
Product (GDP), supply
of adequate raw materials to the growing industrial sector, generation of
foreign exchange earnings, and, provide markets for products from agrarian
sector (Okezie et al., 2012; Nnamerenwa, 2012).
The Nigerian policy strategy was for agricultural sector to be used to enhance
National economic growth (Manyong et al.
2003). This is because agriculture traditionally provides a sustainable pathway
to economic growth alongside the industrial sector.
Several
policies have been formulated by both past and present government of Nigeria to
see to the revitalization and sustenance of the sector. This is important
considering the role the agrarian sector plays in food production and food
security. Agriculture sector before the oil boom contributed 63 percent and 54
percent to Nigerian gross domestic product in the 1950s and 1960s respectively
(Aigbokhan, 2001). The sector’s share in GDP though declined in the post oil
boom period, but yet maintained a persistent increase. For example, between the
70’s and 80’s, the share of agricultural sector in real gross domestic product
(RGDP) in Nigeria averaged 29.2 percent, though it was 33.3 percent between
1980 and 2000, 41.2% between 2001 and 2009, and 21.32% between 2010 and 2017 (CBN, 2018). The emergence of oil in
the 70s as the major foreign exchange earner marked the relative neglect of
agriculture and the emergence of the structural distortion of the Nigerian economy
(Onyebinama, 2007). Decline in agricultural production
level and its contribution towards the development of the Nation’s economy does
not indicate that the sector has been displaced by the attractive oil sector,
but recorded poor output due to neglect by the government on the financial support
being allotted to the crop sub-sector and the agricultural sector in general, as
the oil sector became the major foreign exchange earner of the economy
(Michael, 2017)
The aftermath
of such decline in granting financial support to the agricultural sector is
that Nigeria has lost her identity as a net exporter of agricultural produce (majorly
crops) to a large-scale importer of the same commodities during the period
since 1973 till now. According to Onyebinama and Nnamerenwa (2013), the preference for agricultural development
to maintain the economy dwindled in the country both on the part of the
government and farmers with the emergence of crude oil. Thus, as preference for
agricultural development diminished, willingness to allocate adequate credit
facility to the agricultural sector for production purposes dwindled as well
(Nnamerenwa, 2012) and this is due to poor agricultural financing policy. The agrarian sector has a strong linkage with
the economy; thus, concern for agricultural financing policies and the economy
(Uche, 2011).
The
current level of crop output in Nigeria nowadays has raised a lot of concern as
to the food security of the nation considering that the crop sub-sector of the total
agricultural sector prior to now
constitutes about 65% of the total contribution of the agriculture to GDP
(Mbanasor, 2017). There has been a consistent fluctuation in crop production level while
the share of agricultural sector in gross domestic product declined. Under such
circumstances, food imports and foreign exchange disbursements on such imports
are bound to increase tremendously (Nnamerenwa, 2012). Food security issues
started to emanate in the 1970s when it became apparent that Nigerian agricultural
sector could no longer perform its assumed roles (Mejeha, 2001). This became
more pronounced with the rapid decline in exports of major agricultural
commodities and shortage in domestic food supply. The dismal performance of the
crop sub-sector was due to many disincentives. A typical case of such
disincentive is the paucity of financial support which the sub-sector necessarily
needs. Thus, allocation of credit to farmers for crop production purposes is a major
factor in determining total production and to ensure an increase in
productivity (Odoemenem and Obinne, 2010). One of the financial challenges
faced by crop farmers in Nigeria is the diversion of fund meant for
agricultural developmental plan to other non- agricultural businesses for
profit by commercial bank operators and stakeholders in agriculture. Therefore,
poor financing of the crop sub-sector and the general agricultural sector is
expected to reflect in the output from the sub-sector/sector. Kehinde (2012)
asserted that sustainability
in the development of agriculture is propelled by agricultural policies and one
of such policies is the agricultural financing policy.
Agriculture financing policy is defined as a
development strategy which promotes investment in agriculture, and adoption of improved
technologies necessary to enhance the economic growth. Although agriculture
finance policy is one of the growth factors, it is the determining factor
towards attaining the objectives of development. Agricultural financing
policies are assisted by sub-policies that promote the growth of the agricultural
sector. Implementation of agricultural
financing policies however is supported by macro-economic policies that
provides conducive environment for agricultural sectors to grow laterally with
other sectors (Uche, 2011). The macro-economic policies have positive effect on
profitability and growth of the agricultural sector and farmers’ welfare as it
concerns the flow of funds to the sector in terms of budgetary allocation, subsides,
credit, taxes and thus, must be mutually reinforcing with the agricultural
sector policies. The macro-economic
policies affecting the agricultural sector includes the (1) fiscal (2) monetary (3) trade (4)
budgetary and other policies that govern macro - economic prices (Uche, 2011).The purpose
of agricultural financing policies is to establish and sustain an effective agricultural
financing schemes, programmes and institutions that would provide access to micro
and macro credit facilities for the micro, small, medium and large-scale
producers, processors and marketers in Nigeria. Federal Government of Nigeria
(FGN) however recognized the need for sustaining the agricultural sector early
enough, that it decided to institute policies that promote access to finance
and financial infrastructure for agricultural production, with the sole aim of
achieving the country’s developmental goals.
The Federal Government at various periods do
put in place agricultural financing policies and established multiplicity of
credit schemes, institutions and programmes and that would enhance farmers’
access to credit (Nnamerenwa, 2012; Mejeha, 2001; Ijaiya, Abdulraheem,
Abdullahi and Ijaiya, 2009; and Nwosu,Oguoma, Ben-Chendo and
Henri-Ukoha, 2010).
These were intended to sustain the agricultural sector which had made a
significant contribution to employment generation, food production, foreign
exchange generation and industrial inputs provision in Nigeria (Daramola, Ukeje
and Mclntire, 2007). Some of such impressive policies includes the Agricultural
Credit Guarantee Scheme Fund (ACGSF), which was established in 1978; Nigerian
Agricultural, Cooperative and Rural Development Bank – NACRDB (Now known as Bank of Agriculture Ltd)
established in 1972, and the Agricultural Development Programme established in
1975 ( Eze et al., 2010; Nwosu, Oguoma,
Ben-Chendo and Henri-Ukoha, 2010). These schemes were established to
provide financial support to farmers. For instance, the ACGSF was established
by decree number 20 of 1977 but commenced effectively in 1978 (Awotide et al, 2015; Nwosu et al., 2010, Mejeha, 2001). The scheme is meant to provide 75
percent collateral for credits granted by the banks to the agrarian sector in
case of default (Eze et al., 2010).
The risky and unpredictable nature of agricultural production especially crop
production, the importance of agriculture to the economy, the decision to
provide additional incentives to enhance the growth of agriculture in other to tackle
the issue of food insecurity, and the increasing demand by the lending financial
institutions for appropriate risk aversion measures in agricultural lending
among other reasons provided justification for the establishment of these
credit schemes by the Nigerian Government .
Although the
government has made significant efforts at making good agricultural policies
through schemes, institutions and programmes, it has not been able to promote
them with adequate budgetary allocation and financing coupled with corruption
in the execution of the policies especially as it concerned with crop production.Therefore,
this thesis is poised to unveil the effect of agricultural financing policies
through selected schemes on crop production in Nigeria between 1980 and 2016.
1.2
STATEMENT OF PROBLEM
For a developing country with
dependence on oil economy such
as Nigeria, Government’s
indifference to agriculture indicates great
danger to the
economy. Financing agriculture has,
however, been revealed
not to be adequate
enough to meet the
objectives of Government
Agricultural policies (IFPRI,
2003). Despite the indispensable relevance of agriculture in Nigeria’s
economy, the sector has suffered deterioration over the years due to
inconsistent and poorly conceived government policies including the financing
policy (Nnamerenwa,
2012; Mejeha, 2001; Ijaiya, Abdulraheem, Abdullahi and Ijaiya, 2009). The inconsistency and poorly conceived
government policies on agriculture have been analyzed in three periods namely
the period of agricultural discrimination (1960-1970), the government
intervention period (1970-1985), and the Structural Adjustment Programme period (1986-1993) (Adebiyi and
Babatope,2004). The period of agricultural discrimination was characterized by
active discrimination against agriculture, export restrictions and restriction
of duties on food crops, of which all were disincentives to domestic
agricultural production. During the government intervention periods,
Agricultural sector continued to suffer poor implementation of government
policies with diversion of interest to policies that enhanced crude oil
exploration and exportation, and thus neglect the agricultural sector. During
the Structural Adjustment Programme (SAP) policy period, the aim was to eliminate
price distortion and enhance market liberalization among other objectives, in a
bid to improve growth and development. Yet, the adjustment did not last long (7
years) and never protected the agricultural sector financing policies overtime
(Adebiyi and Babatope, 2004). Agricultural sector continues to suffer
unfavorable government financing policies (Nnamerenwa, 2012).
According to CBN (2012), current Agricultural contributions to the GDP
was placed at 42% (a far cry from its pre and post-independence position of
65%), having recovered from a declined contributions of 30% in the last decade
of the last century, despite having invested over N300 billion into the sector
through the Bank of Agriculture (BOA Ltd), Agricultural Credit Guarantee Scheme
Fund (ACGSF), Agricultural Development Programme (ADP), among others.
Nnamerenwa (2012) noted that inconsistent agricultural financing policies hunts
growth and development of agriculture in Nigeria and sits in the core of the
numerous factors that impedes her economic growth.
Poor financing
of the crop production hampers agricultural development. Prior to the
structural adjustment era, there was increase in the lending portfolios of financial
institutions to the farmers but at concessionary rates. The agricultural
lending was considered problematic, riskier and unprofitable relative to other
sectors. The advent of deregulation however, erased the idea of concessionary
lending by banks. Federal Ministry of Agriculture and Rural Development (2016),
in their reports revealed that Bank loans to agricultural sector in nominal
terms, over the years have increased from about N230 million (then about $233 million) in 1978 to N262 billion ($2.23 billion) in 2005 (CBN,
2007), to over N398 billion 2015. However,
the growth in level of investment in agriculture is less compared with investment
in other economic sectors in Nigeria.
Generally,
the past performance of State- or donor-sponsored rural finance operations has
fallen substantially short of expectations. Many of the institutions
established or supported primarily for delivering financing policies have not evolved
into self-sustained financing institutions. The schemes have reached a minority
of the rural population, often resulting
in benefits in the form of negative [real] on-lending interest rates which
become an unintended ‘grant element,’ captured by wealthy and influential
farmers.
Nigerian
annual food import bill since
2008 has been hovering
around $4bn (about N630
bn) yearly of
which, in the year
2010 alone, for example rice importation
bill was $1bn (N155 bn),
wheat $1.1bn (N165
bn), fish $0.7bn (N
105 bn), sugar $0.4bn (N
60bn), etc, according
to the 2010
annual report of
CBN. By 2012,
Nigeria annual import bill on
rice alone had
exceeded $2.0bn
(N365bn-[N1bn daily]). It is said
that a strong
and efficient agriculture should
ensure, in a nation,
adequate food security
for the growing population, generate
employment, provide enough raw
materials for the
industries and sustenance of equilibrium in balance of payment.
Report
shows that the gross domestic product
(GDP) of Nigeria agriculture has
continued to decline
drastically (NEEDS, 2004) . This indeed is worrisome considering the
number of agricultural
schemes, institutions and programmes
which have been introduced by government as part of its policies to
boost crop production in
Nigeria such as Agricultural Credit
Guarantee Scheme Fund (ACGSF), Agricultural Development Programme (ADP), Bank
of Agriculture (BOA Ltd), among others. Therefore, against this backdrop that
this study analyzed the Effect of selected agricultural financing policies on crop
production in Nigeria. It is in view of the fore-goings that this study raised
the following questions:
(i)
What was the trend in growth rates of crop production and of agricultural
financing policies of schemes, institutions and programmes in Nigeria for the period 1980 – 2016?
(ii)
Was there stagnation, acceleration or deceleration in agricultural crop output and in agricultural financing policies of schemes, institutions and
programmes in Nigeria for the period 1980 – 2016?
(iii)
Were there differences in the mean value of loan made available for crop
production under agricultural financing
policies of schemes, institutions and programmes in Nigeria within the reference period?
(iv)
What was the form of causality between crop production and agricultural financing policies of schemes,
institutions and programmes in Nigeria within the reference period?
(v)
What were the short-run and long-run effects of agricultural financing policies of schemes, institutions and
programmes on crop production in Nigeria within the reference period.
1.3 OBJECTIVES OF THE STUDY
The broad objective of the study was to
analyze the effect of selected agricultural financing policies on crop
production in Nigeria (1980 – 2016).
The specific objectives of the study are to;
(i)
analyze
the trend in growth rates of crop production and of agricultural financing
policies of schemes, institutions and programmes in Nigeria for the period 1980 – 2016;
(ii)
establish whether there was deceleration, stagnation
or acceleration in
agricultural crop output and in agricultural financing policies of schemes, institutions and
programmes in Nigeria for the period 1980 – 2016;
(iii)
compare the difference in the mean value of loan made available for crop
production under agricultural financing policies of schemes, institutions and
programmes in Nigeria within the reference period;
(iv)
ascertain the form of causality between crop
production and agricultural financing policies of schemes, institutions and
programmes in Nigeria within the reference period;
(v)
determine the short-run and long-run effects of agricultural
financing policies of schemes, institutions and programmes on crop production in Nigeria within the reference period.
1.4 RESEARCH HYPOTHESIS
The following null hypotheses were tested in this study.
HO1: There was no positive significant growth in
trend of selected agricultural financing policies and crop production in
Nigeria for the period 1980 – 2016.
HO2: There was no stagnation in the growth of selected agricultural financing policies and crop production
in Nigeria for the
period 1980 – 2016.
HO3: There was no significant difference in the
mean values of selected agricultural
financing policies in Nigeria within the reference period.
HO4: There was no causality between selected
agricultural financing policies and crop
production in Nigeria within the reference period
HO5: Agricultural financing policies did not
positively and significantly influence crop production in Nigeria in the short-run and long-run within the
reference period.
1.5 JUSTIFICATION OF THE STUDY
The significance of this
research study presents the
value or contribution
which the research made to
the existing knowledge.
Obasi (1999), opined that research
is most important
tool for advancing
knowledge and equips
man to mutually relate more effectively to his
environment. Theoretically, this study when completed would contribute
immensely to the growth
of already established
theories in sciences
particularly in agricultural sciences by helping
to enrich the
bank of knowledge
through its reliable
findings on the assessment of the effect
of agricultural financing
policies on crop production in Nigeria. The study would assist in expanding the
frontiers of knowledge through the management of the financing policies in
Agriculture sector especially in crop production.
The
research study ascertained the progress made by the federal government in
improving Nigerian economy through agriculture. Furthermore, the study assisted
in unveiling the challenges or factors militating against effective implementation of government financing
policies and programmes on crop production and will make useful
suggestions towards ensuring
the achievement of goals of such
agricultural financing policies and programmes. This is important
because it is only through viable agricultural financing policies that the
government can resuscitate the agricultural sector in terms of crop production,
and ensure its target goals and objectives in national development.
This study also contributed greatly to already existing body of
literature on issues of agricultural financing policies. Literatures bordering
on the effect of agricultural financing policy on Agricultural production were
richly available although few were able to justify the current poor state of
crop production in Nigeria from financing policy perspectives. In the aspect of
its empirical contribution, this study would serve as
a foundation or
base for future researchers
who may in
due course of
time wish to
embark on the
investigation of the effect of agricultural financing
policies on crop production in
Nigeria. In other
words, this research
would serve the
academia as a useful
reference tool which would stimulate related research studies on agricultural
financing policies and their
effect on crop production in Nigeria.
This study provided
the policy stakeholders and
other key actors
in the government
with the road- maps
that would necessitate
prompt, responsive and
efficient policy making
in Nigerian agricultural crop
production sector. The study suggest the
solutions for effectively tackling the frequent failures in Nigerian agricultural
financing policies.
Lastly, but not
the least, this
study would strategically
improve the practical steps
in implementations of
the government agricultural financing policies through its recommendation on
revamping the public bureaucracies
in Nigeria especially those concerned
with the implementation of
government financial policies
on agricultural crop production.
1.6 SCOPE OF STUDY
This study
focused on the evaluation of the effect of agricultural financing policies on
crop production in Nigeria. This study covered in detail, past and present
government financing policies and programmes on crop production in Nigeria
between 1980 - 2016.
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