to the Study
of the Study
and Limitation of the Study
2.1 Theoretical Review
2.1.1 Rostow’s Theory of Economic Growth:
2.1.2 The Harold-Domar Growth Theory
2.1.3 Arthur Lewis Modern Theory of Economic
Overview of Nigerian Economy
2.3.2 Agricultural Financing
2.3.3 Evolution of Institutionalized Agricultural
Financing in Nigeria
3.1 Research design
3.4 Data Discussion
of Data Employed
AND ANALYSIS OF RESULTS
4.3 Vector Auto-Regressive Model (VAR)
4.5 Implications of Study
RECOMMENDATIONS AND CONCLUSION
of the Findings
Background to the Study
The word agriculture is
a late Middle English adoption of the Latin word agricultura, which was derived from the root words ager, which means field and cultura, which means cultivation or
growing. According to Komlafe (1985), agriculture is the science and act of
cultivating the ground for production of crops, and the preparation of plant
products for man’s consumption. Agriculture is also an act of rearing animals
(including fish production) as well as production and processing of raw
materials for industries. Anyanwu (1997) was of the opinion that agriculturf e
is the main source of gainful employment from which a nation can feed its
teeming population, providing the nation’s industries with local raw materials
and as a reliable source of government revenue.
In the 1960s, the
agricultural sector contributed greatly in domestic production of goods,
employment generation and in foreign exchange earnings for Nigeria (Famogbiele,
2013). This was the situation for almost three decades before oil was
discovered in Nigeria. Since then, the agricultural sector has lost its top
spot as the foremost revenue earner for the country. Consequently, the
percentage of financing for the agricultural sector in Nigeria has dropped
since the 1970s. Agricultural sector plays a very important role in every
economy. It provides massive employments, generates basic raw materials,
provides food for the populace and generates foreign exchange earnings.
Agriculture provides security and stability in the economy and provides raw
material markets for the industrial sector (Okumadawa, 1997, World Bank, 1998,
Food and Agricultural Organization, (2006). Agriculture is broadly divided into
two types. These are commercial agriculture and subsistence agriculture. In
commercial (industrialised) agriculture, large quantities of crops and
livestock are produced through industrialised techniques for the purpose of
sale. In subsistence agriculture, the farmer lives on a small piece of land and
produce enough food to feed his/her household and have a small cash crop.
agriculture sector requires funding. Funds are needed by farmers to purchase
land, buy implements and input at the required time as well as to hire
labourers or workers needed for the day to day activities of the farm. Most
times, funds provided by the Federal Government in from of agriculture finance
are usually not sufficient. As a result of this many farmers lacks extra
credits from private sectors, specialized banks and commercial banks. However,
these credits require stringent conditions for accessibility. Agricultural
financing generally means studying, examining and analysing the financial
aspects pertaining to production of agricultural products and their disposal.
Agriculture finance on the other hand is a branch of agricultural economics
which deals with and financial resources related to individual farm unit
(Tandon and Dhondyal 1962). Murray (1953) defined agricultural financing as an
economic study of borrowing funds by farmers, the organization and operation of
farm lending agencies and of society’s interest in credit for agriculture.
Over the years, the
inability of the agricultural sector to expand as well as contribute immensely
to Nigerian economic growth was due to inadequate financing required to improve
and facilitate agricultural schemes. Agricultural financing is studied both in
micro and macro level. Macro agricultural financing is concerned with different
sources of raising funds for agriculture for the whole economy. It is also
concerned with regulations monitoring and controlling of different agricultural
credit institution. Micro agricultural financing is concerned with the
financial management of the individual farm business unit. It is also concerned
with the study as to how individuals or farmers consider various sources of
credit to be borrowed and how he allocates these credits to the farm and its
Statement of Problem
According to June 2012
report of Central Bank of Nigeria (CBN), the contribution of the agricultural
sector to the Nigeria’s Gross Domestic product (GDP) decreased from about 65%
in pre- and post-independence era to about 42% in 2012 despite almost N300
billion sunk into the sector through various agricultural financing agencies
(Famogbiele, 2013). This decrease in GDP mean an abysmal low contribution to
the economy for a sector which was once the mainstay of the economy in the
1960s and is also a better alternative to oil sector in solving Nigeria’s
economy woes in the present dwindling of oil prices. The Federal Government of
Nigeria has initiated policies, schemes and established institutions such as
the Nigeria Agricultural Co-operative and Rural Development Bank (NACRDB) to
ensure adequate funding of the agricultural sector and economic revival and
growth (Famogbiele, 2013). In spite of these numerous policies and ideas, the
sector is still plunged. The following paragraphs highlights verifiable
problems which has resulted to abysmal contributions of agricultural financing
and indeed agricultural sector to the growth of Nigeria’s economy.
One of the objectives of
the NACRDB is to contribute to the overall growth and development of the
economy (Ezike, Nwibo, Odoh, 2009). However, this objective cannot be achieved
with meagre budgetary allocation to the agricultural sector in general.
Relative to the amount of money budgeted to other sector of the Nigeria
economy, the total budgeted amount to agriculture each year is structurally
deficient, insignificant and inadequate (Famogbiele, 2013). For example, only
4% of the Federal Government’s annual total budget has been consistently
allocated to agricultural sector since 2006 (Sanusi, 2011).
Since the Commodity
Marketing Board (CMBs) were scrapped in the late 1980s in Nigeria, the
agricultural sector took a nosedive. The CMBs ensured effective channel of
stable, good market and pricing for farm produce as well as ensured a proper
link between the peasant farmers, the commercial farmers and the outside market
(Famogbiele 2013; Owofemi, 2011). This means that the agricultural sector has
been stripped of one of its power of contributing to the economic growth. One
of the activities of the defunct CMBs which helped the Nigeria’s economy in the
1960s and favoured life of the farmers at the grassroots was the promotion of
and establishment of adequate storage facilities which enable the CMBs to
effect the right pricing and distribution of farm produce (Fomogbiele, 2013).
Since these adequate storage facilities are lacking, it has resulted to
ineffective price control, an all-round seasonal distribution of farm produce,
and hence low economic growth and development.
Most farmers are faced
with difficulties in loan repayment and collaterals. Awoyemi (1981), regarded
collaterals as the greatest obstacle confronting farmers in sourcing out credits
both from formal and informal sectors. This is often as a result of unforeseen
circumstances which in turn results to inability of farmers to capture
financial services. Therefore, government through its policies, schemes and
programmes should aim at providing finances to farmers to increase agricultural
and economic growth, which has been underdeveloped.
The following research questions are
considered relevant to the study.
Is there any significant impact of agricultural financing
on the economic growth in Nigeria?
there any long-run relationship existing between agricultural financing and the
economic growth in Nigeria?
The general objective of this research is to examine the contributions of
agricultural financing to economic growth of Nigeria within the period under
study. To achieve these objectives, two specific objectives have been identified.
These are to:
Examine if agricultural financing have any impact on
economic growth of Nigeria.
Examine if there is any long-run relationship existing between
agricultural financing and economic growth in Nigeria.
following null hypothesis would guide this research work.
Agricultural financing do not have any significant impact on economic
growth in Nigeria.
There is no long-run relationship existing between agricultural financing
growth in Nigeria.
1.6 Significance of the Study
Agriculture is expected
to make significant contribution to the general economy and also to the net
foreign exchange earnings. The findings of this study will be useful to
different categories including students of agricultural economics, economics
and policy makers who are interested in the contribution of agriculture to the
economic growth of Nigeria. Agricultural financing has vital and significant
importance in the agro-socio-economic development of the economy both in macro
and micro levels. Therefore, this research would also enable the government to
make decisions on how to determine the suitable financial policies to adopt to
help in solving financial problems associated with the agricultural sectors
such as loan procurement and effective lending to benefit the micro farmers.
Agricultural financing can also reduce regional economic imbalances and in
reducing wealth variation. Hence, this research will serve as an avenue for
both the public and private sector or investors to invest tremendously and to
contribute to agricultural growth thereby stimulating economic development and
growth. This research would also contribute tremendously to the existing
knowledge in the area of agricultural financing by teaching the public about
agriculture, its various financing policies toward achieving sustainable economic
growth in Nigeria.
1.7 Scope and Limitation of the Study
The study will
analyze the impact of agricultural financing on economic growth in Nigeria for
the period of 34 years (1980-2014) using annual data reports from the CBN
The major limitation of the study is
that there is a discrepancy and inconsistency of data. The data reports from
the central bank of Nigeria are sometimes different from that of federal bureau
of statistics. Most times there are series of omitted data which relevant to
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