TABLE OF CONTENTS
Table of contents
of the study
of the problem
of the study
of the study
and Limitation of the study
of Finance in Agricultural development
alleviation through agriculture
defence against risk and uncertainty
Research design and methodology
of primary data
of secondary data
Data presentation and analysis
Summary of finding
1.1 BACKGROUND OF THE STUDY
Agriculture has been the main stay of Nigerian economy before the Nigeria
independence until the era of oil boom.
Statistics show that in 1963/64 agriculture provided about 50% of the
Gross National Product (GNP) and 88% of the country’s basic foreign exchange
earner of crops like palm oil, palm kernels, cocoa, cotton, groundnut, cereal,
woods as raw material for their industries.
Although after independence a gradual drift in cities in search of
white-collar jobs began and this handicapped the agricultural sector, which
lead to a serious decline in agricultural produce, compounding this problem is
the oil euphoria, which added more impetus to population drift and neglect
thereby leading to Nigeria’s
loss of agricultural manpower. Nigeria quickly
turned from a food exporting country with bill accounting for 18% in 1979 and
more than 26% in 1983. Total import bill
at this rate compared with 8.5% in 1971 was a sign of total collapse of the
It is in realization of the importance of agriculture in overall economic
growth and development of any nation that various Nigerian governments
(military and civilian administration) decided to take a bold and realistic
step to bring agriculture back to its position of prominence in the national
economy. Government has played
significant roles in Agriculture financing with several strategies towards risk
management. Some of these role are:
1. SUBSIDIES: Aimed at encouraging farmers to produce
more. The effect of subsidy reduces the
cost of production for the producers since they will be required to pay less
per unit of farm inputs (fertilizers seeds palm). Also the producers are able to purchase more
of these subsidy inputs, which if used intensively as recommended will lead to
increased product. The resultant effect
would be fall in prices if demand does not increase more than proportionately.
2. AGRICULTURAL RESEARCH INSTITUTE: The establishment of the research institute
to develop high yielding and the disease resistant seedlings and livestocks. Such research institutes are National Roots
Research Institute, Ibadan
and Livestock Research Institute Von etc.
3. FARM SETTLEMENT: This was established in early 60’s. It involves the government in the acquisition
of land for agricultural production and marketing. By this means farmers were able to get
parcels of land from the government without actually paying for the lands in
order to enhance their agricultural products.
4. LAND USE DECREE OF 1978: In this year the government promulgated
the Land Use Act which sought to vest ownership of land on government. The use of land for agricultural purpose was
recognized under this act with a view to eliminating the customers impediment
5. STRATEGIC GRAIN RESERVE: The original target of the federal government
was to build up to 250,000 tonnes strategic grain reserves capacity during the
1975 – 80 development plan period. But
very unfortunately very little was achieved because of the light domestic
6. OPERATION FEED THE NATION (OFN): The take-off of operation feed the nation was
aimed at boosting food production for the growing nation and to encourage
everybody to be involved in farming irrespective of social status but
unfortunately this could not live long due to change of government.
7. FINANCIAL INSTITUTION: Research finding has shown that agricultural
finance is very important. Based on this the federal government established
Nigerian Agricultural Co-operative Bank (NACB) in 1973 to help in managing and
financing agricultural production.
Commercial banks were also given credit calling by the federal
government through the Central Bank of Nigeria (CBN) to contribute towards
agricultural financing and also authorized to open up rural branches.
8. AGRICULTURAL CREDIT GUARANTEE SCHEME:
This decree of 1977 No. 20 was established with N100m which 60% of the
subscription was made up of the federal government and 40% by Central Bank of Nigeria. This was meant to help farmers in their need
necessary to boost agricultural produce and on the other hand to provide
guarantee in respect of loans granted by commercial and merchant banks for
agricultural purpose with the aim of increasing the level of bank credit to the
agricultural sector. The liability to
the guaranteed fund is 75% of the amount in default subject to a loan to an
individual of N50,000 maximum and co-operative or limited liability company a
maximum of N1 million.
Basically, all these programmed/scheme are:
Aimed towards providing or marking available.
Investment funds for and improvement of agriculture.
Unfortunately, for various reasons, these measures made only marginal
impact on the flow of credit to farmers the main factors on which this death of
credit to farmers in the risky nature of agricultural lending. The risks element in commercial and merchant
bank lending to farmers is manifested not only in the compulsion to lend long
terms and concessionary interest rates which contradict commercial banks
lending policy of short terms, self liquidation credit at discretionary rates
of interest negotiated by the parties to the loan contract. It is also shown in their fear of default by
the borrowers as experience reports points to the existence of a high default
rate in rate agricultural credit in Nigeria.
According to OLUMRINDE ONI, the lack of progress achieved in agricultural
sectors is because of the risks associated with the agricultural sectors
These risks result from factors such as natural risks (e.g. weather,
pest, disasters etc) and social risk (theft, embezzlement, strike, ware change
in social structures and technological change) economic risks (price
fluctuation, loss or unexpected depreciation of investment change, in price of
farm requisite) and personal risks. (e.g. death, old age, sickness, maternity,
accidents, employees liability, inability to sell power). The effect of these factors make risk
management in agricultural investment not just important but inevitable and
indeed very urgent for the success of lenders and suppliers of agricultural
finances, also the effect of middle men in the disposition of agricultural
produce to the western country has contributed to the risk encountered in
agricultural finance in the sense that most of these farmers at their end of
the day do not get actual worth of their products because the middle men cut
them short as they had to make their own gain from their negotiation of selling
of these agricultural products. This
necessitates the formation of the boards that amount to this but still they had
little or no effect as themselves deviate from their scheme of work.
Upon all the efforts of the government to ease the availability and the
use of agricultural credit as enumerated in the foreign section, the average
farmer has continued to complain and grumble and his inability to obtain
financial assistance in the farm of credit facility while the bank on the other
hand have over the years sneered at the use of force to make them lend to
farmers. The banks unwillingness to lend
for agriculture purpose is the result of the belief that agriculture is
considered a high risk and low yield venture for banks financing.
As it is well known, the development of agriculture and self-sufficiency
in food production coupled with the provision of raw materials for the growing
industries is among the top priorities of the present government in the
country. Furthermore, every well
is concerned with the continuous escalation of our food input bill. It is really a very dangerous situation for a
developing economy like ours to heavily rely on other countries for food
supplies. There is need for all hands to
be on deck to put through these ideas which can be used to formulate meaningful
policies that will stimulate a positive
take off of our agricultural sectors, and how the imminent risks could
be managed to ensure an optimum realization of our agricultural sectors, it is
such idea that this research aims to put across at the end.
Agricultural development is old and closely associated with the creation
of mankind since food is one of the essentials of life. The researcher identifies the risk in
agricultural financing and recommends some management strategies in the case of
Nigerian agricultural development because its one of the factors of production,
while management of the finance and risk is also among manor factors similarity
management of agriculture by NACB as part and parcel of total financing input
in agricultural develop.
ASSOCIATED WITH AGRICULTURAL FINANCING:
Numerous are the problems associated agricultural financing in Nigeria for a
better understanding, these problems are classified into three categories which
are as follows:
Generally identified problems
Farmers related problems
Financial institution problems.
(i) High cost labour
Lack of incentives
Lack of viable rural development
Inadequate transport system
in processing of application forms.
(ii) Lack of adequate
appraisal before taking loans.
Granting of inadequate loan by financial institution
Lack of tangible assets and clear little to borrow.
Problems of lend fragmentation
Low level of production
Illiteracy and ignorance.
(i) High risk inherent in
of loans meant for agricultural project into other projects.
Misconception about loan being regarded as national
Loanable fund are limited and therefore cannot meet the
demand of innumerable farmers.
Difficulties associated with loan recovery.
Increasing incidence of loan default farmer inability
to provide collaterals.
Farmers inability to provide collaterals
Farmers inability to provide feasibility report on the
projects for which credits are sought.
Very low rate of return on some agricultural projects.
Natural hazards e.g. unfavorable weather, wind,
draught, pest etc.
Lack of agricultural exports officers in processing of
application forms for release of funds etc.
above-mentioned problems are among the major problems regarding agricultural
production. It is equally true that the
latter ones inhibits the farmers from reaching or laying hands on the needed
finance as and when needed Nigeria Agricultural and Co-operative Bank (NACB)
and other agricultural financial institutions for those reasons stated above
something away from granting loans even though it is meant for that and also
because agricultural projects are dependent on so many extraneous factors that
can adversely affect investment on them.
They believe that you cannot talk about agriculture and on the other
hand talk about safety of fund, profitability quickness and ability to pay bank
within specified period, which are very important lending considerations.
In summary, our agricultural industry to a large extent is engulfed with
problems of high risks associated with illiteracy land tenure system, delays in
obtaining financial assistance with its favourable interest rates near absence
of collaterals, lack of efficient making system and a host of others. All these tend to make funding of
agricultural risk and less attractive to agricultural from financial
It is on this background that the researcher tend to examine the
performance of Nigerian Agricultural and Co-operative Bank (NACB) the measure
adopted in financing agricultures and the achievement so far in increasing the
level of agricultural output in Nigeria as a whole through adequate financing
by the bank potential management of outputs by farmers and limitation or at
least reduction of the magnitude of risks and based on the results of finding
and evolution, suggest avenue for improvement in the field, ideas which could
be meaningful to our policy makers and most of all, how these uninsurable risk
could be managed to its barest minimum.
The primary objective of this study is to examine the issue relating to
the management of risk in agricultural financing put succinctly, it is
objective of these study to find solution to the following.
To survey the numerous problems and constraints faced
by NACB in financing agriculture.
Identify the problem encountered by farmers in getting
loans from banks and other agricultural financing institutions.
To examine the causes and nature of risks in
To identify possible variation of the risks and reasons
therefore for such variation among project and lenders.
Suggest avenues of effective management in the field of
agricultural and proper solution that would help to eliminate or at least
managed effectively the identified risks associated with agricultural
Agriculture is a business and like any other business sector cannot be
carried out effectively and successfully unless there are good management power
for effective utilization of all necessary inputs with a reduction of risks and
The problems of food shortage and economic stagnation suffered in recent
years can be traced directly to scarcity of farm input and lack of management
in turn is the result of shortage of farm credits. At a stage in agricultural development when a
man with energy and initiative who lack only the resources for more and
efficient production is enabled by the use of finance eliminate the area block
on his part of improvement. Today, more
than ever before there is a dire and need for not only finance to purchase all
necessary factors, fertilizer feeds, lands, land improvement of storage
facilities etc. but also managerial capacity to control direct and manage the
finance and inputs for reduction of not elimination of the risks involved in
the production. It meets the need of the
present day. It is obvious to say that
the development agricultural and self sufficiency in food production coupled
with the provision of raw material for growing industries is among the top
priority of the present of raw material for growing industries is among the
top, priority of the present government.
It is agricultural sector that will be reality assessable to save a
dangerous situation of escalation of our import bill, heavy reliance on other
countries for our good suppliers and economy in general. Hence, all eyes are on the lee of activities
and output of agricultural sector with emphasis on the extent of financial
investment in the sector of achieving the set objectives.
Since credit, though recognized as playing important roles in modern
agriculture, finance to farmers is important empirical investigation into the
cause of its death for immediate removed of such cause any such investigation
will be significant to farmers, the lenders and the government. The study is significant to farmers since it
seeks to remove the bearer between them and access to agricultural loans and
consequently improvement in agricultural production. It is significant to the banks that supply
agricultural loans to the farmers.
Finally, the study is timely and significant to the government and
indeed the national economy. This is
seen from the importance of the study as helping to achieve the age long dream
of government of improving agricultural production through the provision of
For the purpose of this study the following hypothesis have been
NULL HYPOTHESIS ‘HO’
ALTERNATIVE HYPOTHESIS ‘H’
does not present a high risk to the agricultural financial credit
presents a high risk to the
agricultural credit financing institution.
Credit made to
agriculture is enough to develop and modernize Nigerian agriculture
Credit made to
agriculture is not enough to develop and modernize agriculture in Nigeria.
for agriculture are not diverted to other sector of the economy
for agriculture are diverted to other sector of the economy
LIMITATION OF THE STUDY:
This study is intended to expose the risks in agricultural production
between financial institution and farmers and make suggestion of how these
risks could be managed efficiently. The
study covers the operation of Nigerian Agricultural and Co-operative Bank
(NACB) and to what extent farmers have benefited from their financing in
development of agricultural projects.
The study covers a period of 10 years stretching from 1980-1990. It is hoped that this period will allow for
effective and detailed study of problems and lead way to suggestions that
provide effective solutions to the problems of risk and adopt risk management
On the limitation on this study, it would be out of place to think that a
study of this nature, like any contemporary scientific investigation was free
from hindrances. The researchers
encountered several problems during the course of this investigation.
One of the most significant limitations of this study was that there was
a general lack of adequate data, necessary for the work. the quality of the research would have been
enhanced if these data were available.
Another related problem was secretaries and hoarding information by both
the financial institution and the farmers interviewed. The bank officials deliberately shield away
from interviews and some accepted. They
only gave information on their operation to the extent that would not implicate
them and without giving some necessary data towards as confidential.
The literacy level of the respondent especially the farmers posed some
heavy threat as they did not understand what the whole idea of research was all
about, some were stark illiterate that they would not read between the lines
and the need for interpretation came in, some half-baked farmers saw it from
entirely a different view and refused complying as the term the whole study
Time and finance was another constraint of this works, since there was no
time specifically mapped out for this, it has to be coordinated with other
school works, finance was another.
Risk is the possibility of losing, in the case the finance invested in
FINANCE: Money from the government or financial
institutions used in the financing of farm agricultural procedure.
GROSS NATIONAL PRODUCT: The total value of goods and services
produced in a country under a particular year.
RURAL POPULATION: These are the village dwellers who
provide labour for agricultural production.
AGRICULTURAL MANPOWER: Here referred to experienced labour for
Having of some items e.g. land, tractors etc for agricultural
EXTENSION SERVICE: Trained agricultural officers who visit
farm to advise farmers on how to manage the farms and use agricultural input
for bombard harvest.
FARM MACHINERY: Farm machinery is the tractor equipment and
other related machinery used in farming.
DEPRECIATION OF INVESTMENT: This is the fall in value of both cash and
asset of all that was put into agriculture.
NATURAL HAZARDS: Here is dangerous natural activity which
risks this activity occurs unknowingly and it is not caused by human beings.
IRRIGATION: This is the supply of water to a dry land
through man-made stream of other technological know how.