1.1 Background to the Study
Agriculture’s contribution to poverty reduction is sometimes thought to be small, because its relative economic importance usually falls when low income countries successfully develop. This view is misleading. Strong agricultural growth, particularly increased productivity, has been a feature of countries that have successfully reduced poverty.
Rapid increase in agricultural output, brought about by increasing land and labour productivity have made food cheaper, benefiting both the urban and rural poor, who spend much of their income on food. Poor households typically spend 50-80% of their income on food (Nugent, 2000), including many poor farmers.
In addition, when the conditions are right, increasing agricultural productivity has increase the incomes of both small and large farmers and generated employment opportunities. These increases in income are particularly important because the proportion of people mainly dependent on agriculture remains high in the world generally; about 63% in Sulk Saharan Africa (developing countries) including Nigeria (FAOSTAT, 2004).
Over the past three (3) decades, oil sector in Nigeria has dominated the economy of Nigeria which has also been as not having yielded enough in income growth of the Nigerian populace. Oil exploration has over the years not contributed to the alleviation of poverty in Nigeria which has made many researchers and concerned policy markers to turn attention to a nearly neglected sector (agriculture) which is what the greater population of Nigeria is engaged in. according to Adebiyi et al (2005) oil dominated the Nigerian economy , rising from 29 percent of gross domestic product (GDP) in 1980 to 52 percent in 2005. Oil and gas now contribute about 99 percent of exports and nearly 8 percent of government revenues, although their contribution to employment is to be only 4 percent. Agriculture, the second largest sector, fell from 48 percent of GDP in 1970 to 20.6 percent in 1980 and was only 23.3 percent of GDP in 2005. In terms of employment, agriculture is by far the most important sector of Nigeria’s economy, engaging about 70% of the labour force. Agricultural holdings are generally small and scattered; farming is often of the subsistence variety, characterized by simple tools and shifting cultivation. These small farms reduce about 80% of the total food. About 30.7 million hectares (76 million areas), or 33% of Nigerian’s land area, are under cultivation. Nigeria’s diverse climate, from the tropical areas of the coast to the arid zone of the north, make it possible to produce virtually all agricultural products that can be grown in the tropical and semitropical areas of the world. The economic benefits of large- scale agriculture are recognized, and the government favors the formation of cooperative societies and settlements to encourage industrial agriculture. Due to these findings it has become a increasing recommendation for attention to be turned to financing agricultural sector in order to maximize its benefits as a means of cushioning the scourge of poverty in Nigeria.
Following the report of Ayodamola (2009) Agricultural experts have called for an investment in agricultural researches in other to have as substantial development in sub-Saharan Africa as a way to reduce poverty amount the, people of the region. They came to this conclusion after a recent study authored by Arega Alene and Ousamane Coulibaly of the International Institute of Tropical Agriculture. (IITA), who found that agricultural researches have had a positive impact on improving productivity and reducing poverty level among sub-Saharan Africans. According to the study, investing in agricultural researches and project is very important as this will go a long way in improving productivity and reducing the poverty level among the people of Africa. The study puts the farmers benefits from agricultural researches on an impressive estimated aggregate rate of 55 percent increase in productivity and poverty alleviation.
It is worthy of note that poverty in its various forms has increasingly occupied the attention of the international community during the last decade. Successive summits have made commitments to drastically reduce the misery from which so many humans suffer throughout their lives. Such attention is still painfully slow, even though measures to improve the livelihoods of the poor are affordable. Hunger and food insecurity – the most serious forms of extreme poverty –have now become international priorities, and participants in the 1996 World Food Summit made a solemn commitment to halve hunger in the world by 2015. The slow pace of poverty and hunger reduction points to an urgent need for strategies that better target the areas where poor people live and the activities on which their lives depend. A successful strategy for alleviating poverty and hunger in developing countries (including Nigeria) must begin by recognizing that they are mainly rural phenomena and that agriculture is at the heart of the livelihoods of rural people. Today, 75 percent of poor people in developing countries live in rural areas. In 2020, when the majority of the world population is projected to live in urban areas, 60 percent of poverty will still be rural poverty. And rural decline is among the root causes of premature urbanization and urban poverty. There are several arguments supporting a rural focus for development aimed at poverty reduction (IFAD: Rural Poverty Report, 2005).
In Nigeria situation, “poverty reduction is the most difficult challenge facing Nigeria and its people and the greatest obstacle to pursuit of sustainable socioeconomic growth. The poverty rate in Nigeria increased from 27 percent in 1980 to 66 percent in 1996; by 1999 it was estimated that more than 70% of Nigerians lived in poverty (NEEDS, 2003).
Agriculture is the principal driving force of the rural economy and, for those developing countries without substantial mineral resources, often the whole economy. Dependence on agriculture for economic growth and export earnings increases with the prevalence of hunger, and so does the proportion of people whose lives depend on the rural economy. This is demonstrated in the sense that massive, sustainable poverty and hunger reduction is inconceivable without growth in rural economies, and summarizes the evidence, showing the potential agricultural growth to reduce poverty.
Hunger and poverty reduction require that the incomes of poor people and the sources from which they derive their livelihoods be enhanced. Therefore, poor income growth needs to be encouraged. The question is: under what circumstances is income growth pro-poor? The short answer is that income growth originating in agricultural development will reduce poverty, provided that it does not occur in a context of high inequality in asset ownership (FAO.2001).
The role agriculture will play to alleviating poverty depends much on the attention being given to the sector. Over the years, the agricultural sector as neglected and those who engage in it was replica of poverty. The production capacity declined persistently as a result of non-proper funding of the activities of the sector. Those who engage in farming only practice which is capable of improving their individual lives and increasing food production for the nation.
Banks and other financial institutions did not help matters in the past as little provision was made towards funding agriculture due to farmers involved not being able to provide acceptable collateral. However, in recent times the Central Bank of Nigeria (CBN) through the directive of the residency has promulgated laws that have enabled farmers to lay hands on various loans now made available. Whether these funds have reached the ands of the “real” farmers is question to be answered in this work through the level poverty has been alleviated in recent time.
Therefore, this research tries to look into and analyze the level of financing that has been made to agriculture and the consequent effect it has had in alleviating/reducing poverty in Nigeria.
1.2 The Statement of Problem
Despite the historical perspective which shows that agricultural development is not a panacea and despite harsher conditions, there is still believe that agriculture is the key to economic development and poverty reduction. Extreme poverty remains an alarming problem in the world’s developing regions, despite the advances made in the 1903. Progress in poverty reduction has been concentrated in Africa including Nigeria. The poverty rate in Nigeria increase from 27 percent in 1980 to 66 percent in 1996; by 1999 it was estimated that more than 70% of Nigerians lived in poverty (NEEDS, 3003).
The Nigeria government has at various times adopted many policies and programmes to tackle the poverty-poverty plaguing problem including operation feed the Nation (OFN), Green revolution and Nation Poverty Eradication Programme (NAPEP, which was later transformed into National Poverty Alleviation Programme (NAPAP). Recently, there has been wide acceptance and realization of the role agriculture, being properly financed, could play in poverty alleviation, being the major preoccupation of the rural-poor.
The question remains: to what extent has or will financing agriculture help in reducing or alleviating poverty in Nigeria?
1.3 The Objective of the Study
The purpose or objective of carrying out this research is generally: main objective:
v To evaluate how agricultural sector financing will reduce the level of poverty in Nigeria
1.4 Test of Hypothesis
The study on agricultural financing and poverty reduction in Nigeria has led to the following hypothesis:
H0: Agricultural financing has no significant relationship with reduction poverty in Nigeria.
1.5 Significance of the Study
Considering the fact that agricultural sector which has been neglected in the past is receiving attention at present especially on the role it plays on socio-economic development, the significance of this study can never be over-emphasized. Therefore, this research work is significant in the sense that it will cultural sector could do in alleviating (reducing) poverty in Nigeria.
Also, the government will find it interesting the recommendation it offers as to where to invest in order to tackle poverty and other socio-economic problems in Nigeria. Lastly, researchers on a related topic will also find it worth-while in their quest to making further research on this area.
1.6 Scope and Limitations of the Study
This study and research work covers the period of 1980-2010.
It should be noted that no research work is completely perfect; based on the few limitations encountered in this work is well documented.
Mostly was the problem of sourcing Nigerian poverty indices due to the daunting nature of information gathering and management in Nigeria. Also, it must be noted that combination of this research work with academic requirements as is expected was quite challenging and still forms as part of stations. However, in spite of these limitations, it was still possible to put up a good search in analyzing the role agriculture financing has played in reduction of poverty in Nigeria.
Regression analysis based on the classical linear regression model, otherwise known as Ordinary Least Square (OLS) technique is chosen by the researcher in the research method. The researcher’s choice of technique is based not only by its computational simplicity but also as a result of its optimal properties such as linearity, unbiasedness, minimum variance, zero mean value of the random terms, etc (Gujarati 2004).
3.1 MODEL SPECIFICATION
In this study, hypothesis is stated with the view of examining the impact of agricultural financing on poverty reduction in Nigeria (1980-2010). In capturing the study, these variables were used as proxy. Thus, the model is represented in a functional form. It is shown as below:
PL = F (ACGSF, GEA)…………. 3.1
PL = Poverty Level (Dependent variable)
ACGSF = Agricultural Credit Guarantee Scheme Fund (Independent variable)
GEA = Government Expenditure on Agriculture (Independent variable)
In a linear function, it is represented as follows,
PL = b0 + b1ACGSF + b2GEA + Ut ……………3.2
b0 = Constant term
b1 = Regression coefficient of ACGSF
b2 = Regression coefficient of GEA
Ut = Error Term
3.2 MODEL EVALUATION
At this level of research, using a time series data, the researcher estimates the model with ordinary least square method. This method is preferred to others as it is best linear unbiased estimator, minimum variance, zero mean value of the random terms, etc (Koutsoyiannis 2001).
The tests that will be considered in this study include:
Coefficient of multiple determination (R2 )
Standard Error test (S.E)
Durbin Watson Statistics
Coefficient of Multiple Determination (R2 ): It is used to measure the proportion of variations in the dependent variable which is explained by the explanatory variables. The higher the (R2 ) the greater the proportion of the variation in the independent variables.
Standard Error test (S.E): It is used to test for the reliability of the coefficient estimates.
If S.E < 1/2b1, reject the null hypothesis and conclude that the coefficient estimate of parameter is statistically significant. Otherwise accept the null hypothesis.
T-test: It is used to test for the statistical significance of individual estimated parameter. In this research, T-test is chosen because the population variance is unknown and the sample size is less than 30.
If T-cal > T-tab, reject the null hypothesis and conclude that the regression coefficient is statistically significant. Otherwise accept the null hypothesis.
F-test: It is used to test for the joint influence of the explanatory variables on the dependent variable.
If F-cal > F-tab, reject the null hypothesis and conclude that the regression plane is statistically significant. Otherwise accept the null hypothesis.
Durbin Watson (DW): It is used to test for the presence of autocorrelation (serial correlation).
If the computed Durbin Watson statistics is less than the tabulated value of the lower limit, there is evidence of positive first order serial correlation. If it is greater than the upper limit there is no evidence of positive first order serial correlation. However, if it lies between the lower and upper limit, there is inconclusive evidence regarding the presence or absence of positive first order serial correlation.
3.3 SOURCES OF DATA
The data for this research project is obtained from the following sources:
- Central Bank of Nigeria Statistical Bulletin for various years.
- Central Bank of Nigeria Annual Account for various years.
- Central Bank of Nigeria Economic and Financial Review for various years.