LITERATURE REVIEW: INVESTIGATION OF THE IMPACT OF AGRICULTURAL FINANCIAL ON POVERTY REDUCTION



CHAPTER TWO
LITERATURE REVIEW
2.1       Review of Related Literature
            It has become a wake up call to many researchers realizing the role agriculture when properly financed could help in reducing poverty in developing economics including Nigeria. In this vein, effort has been made in most studies to explain the workability of this proposition. Hence, in this subsection, it is pertinent to review the works of chosen authors who has researcher in this direction.

            Walknhorst (2007) emphasized that Agricultural policy makers need detailed information on the effectiveness of past policies, in order to increase the efficiency of government interventions to foster agricultural development and poverty reduction. The indicators of policy distortions reported in this study aim to contribute to a better understanding of the direction and magnitude to which policy instruments have affected incentives that agricultural producers and food consumers in Nigeria have faced over the past 50 years. In particular, the distortion indicators attempt to measure the divergence between the price actually paid to the agricultural producer and the price that the farmer would have received in a distortion free policy environment. The findings of the study indicate that Nigeria’s policies towards agricultural producers have shifted significantly over time, with agricultural producer support first declining after the country’s independence, then increasing again between the mid-1970s and the mid- 1980s, and afterwards moving towards an incentive-neutral stance. The sectoral averages hide large support differences across commodities though. Export commodities have consistently been explicitly or implicitly taxed, while import-competing commodities have benefited from producer support through tariff and non-tariff barriers and, to a lesser extent, budgetary payments. In this context, recent policy reforms towards greater regional and global trade integration promise to remove the remaining anti-trade bias and provide producers with a more market-friendly policy environment.

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            In a related study, Ogen (2007) explained that a strong and an efficient agricultural sector would enable a country to feed its growing population, generate employment, earn foreign exchange and provide raw materials for industries. The agricultural sector has a multiplier effect on any nation’s socio-economic and industrial fabric because of the multifunctional nature of agriculture. He therefore, emphasized the fact that the agricultural sector is the engine of growth in virtually all developed economics. Specifically, the work limits itself to the important role of the agricultural sector in engendering sustainable development and a significant level of poverty reduction in Brazil. He explained that the scenario in Brazil is in contradiction to that of Nigeria where it would seem that successive Nigerian governments have only been paying lip service to agricultural development. Thus, the essence of the comparison is to reiterate the fact that Nigeria and other Third World countries need to urgently develop their monumental agricultural potentials if they are to achieve rapid industrial and economic development.
            Obeta (2002) emphasized that Nigeria has had laudable agricultural polices and programmes, yet hunger persists in the country. In his viewpoint the author argued that the perennial food scarcity in Nigeria is attributable to administrative constraints. He highlighted the country’s defective administrative structure, political instability, geopolitics, acrimony and antagonism among staff, faulty price policy and inefficient credit dispensation. Recommendations include defining the roles of three tiers of government, employing selective agricultural policy instruments on the basis of socio-cultural, economic and ecological differences, and adopting a long-term agricultural policy.
            Ogwumike (2000) provided some basics for further discussion on the issue of strategies for poverty alleviation. He pointed out the need to shift emphasis to target approach to poverty reduction in Nigeria. This will required several inputs including alternative measures of poverty that are based on minimum standards either in’ terms of food, income or other basic needs to which minimum standards could be applied. The study explained that when poverty groups are identified on the basis of such acceptable minimum standards, it makes it eerier to address their poverty problems since policies and programmes could be targeted to them based on those aspects of need that constitute the acceptable minimum standards. He further explained that given the interest that poverty research has generated in the country especially in the last few years, there is need to ensure that this momentum is not only sustained, but should be used as a vehicle to meaningfully reduce poverty in Nigeria within the first decade of this 21st century.
            In his study, Akanji (2004) established the facts that poverty is indeed increasing in Nigeria based on the poverty assessment study commissioned and sponsored by the World Bank in 1995. It further indicated in the introduction that the World Bank and the IMF group are focusing on poverty reduction as a prerequisite for debt relief. The paper was structured into five sections with introduction being section one. Section two gave conceptual framework and reviews some country experiences of micro-credit programs. Section three described the efforts put in place in Nigeria –the World Bank group efforts and the IMF to alleviate poverty while section four offered the micro-finance model and principles that could be adapted in Nigeria considering the Nigerian experience on financial intermediation, action five concluded the paper. In the conclusion, the paper emphasized that indeed micro-finance program in Nigeria, the paper indicated that:
1.      There is significant room for improvement within the current dispensation.
2.      The current situation with improved revenue through oil wind fall could support the poverty reduction program.
3.      Serious issue of supervision must be tabled and discussed thoroughly with the financial sector regulating authorities for the new merger of formal/informal credit institutions.
4.      Training must be built into the micro-finance program.
5.      Ensure the budget previous are made during fiscal year to assist program of transfer to the poor.
              In a bid to analyze the level of bank credit to agricultural sector Ollor and Okoye (1983) utilized a cost-benefit analytical framework in assessing the performance of Nigerian commercial banks in providing credit to agriculture. The results suggested a negative relationship between the net income of commercial banks and the amount of-credit lent to the reducing the transaction costs of commercial banks in order to sustain a higher level of bank credit to agriculture financing is indeed the right path towards poverty reduction in Nigeria. Hence, this study will not only add to the plethora of literatures giving recommendation as to how agriculture serves as the key to poverty reduction but will also offer areas of investment that will make this maximally feasible.

2.2         The Structure of Nigerian Agriculture     
              Nigeria is endowed with huge expanse of fertile agricultural land, rivers, streams, lakes, forest and grassland, as well as a large active population that can sustain a highly productive and profitable agricultural sector. This enormous resource base, if well managed, could support a vibrant agricultural sector capable of ensuring self sufficiency in food and raw materials for, the industrial sector as well as providing gainful employment for the teeming population and generating foreign exchange through exports” (CBN, 2000).
              To highlight the situation of Nigerian agricultural sector, NEEDS (2003) explains it thus: “over he years the rate of growth in agricultural production has stagnated and failed to keep pace with needs of a rapidly growing population, resulting in a progressive increase in import bills for food and industrial raw materials. The potential of the agri-business sector as a major employer of the growing labour force and an earner of foreign exchange has also been undermined. As a result, - the large majority of Nigeria’s populations, many of whom live in rural areas, remain poor.

2.3         Nigerian Agricultural Sector Development        
              Over the years, Nigerian agricultural sector has experienced many developmental challenges and positions depending on its levels of distribution at various stages to Nigeria economic development. There have equally been various policies targeted at improving the performance of the sector.
  Nigerian agriculture has traditionally been the mainstay of the Nigerian economy and it has many roles that are being assigned to it in the course of Nigeria economic development. As explained in the Central Bank of Nigeria publication (2000), the objectives of agricultural policies as contained in the fourth national development plans implemented during the period 1960-1985 and subsequent rolling plans could be broadly stated as follows:
1.           Promotion of the self sufficiency in food and raw materials for                                  industries                               
ii.           Improvement of the socio-economic welfare of rural people engaged in agriculture; and
iii          diversification of the sources, of foreign exchange earnings through increase agricultural exports arising from adoption of appropriate technologies in food production and distribution.
            During these periods of development, various policies were formed and to ensure the realization of the policy goals, various institutions were established for supervising or for providing some of the essential support services required by the sector. Among these polices were:
a.                  Agricultural farming polices
b.                  Structural adjustment programme (SAP)
c.                  Agricultural research and training
d.                  Agricultural pricing and marketing policy; etc

2.4       Nigerian Agricultural Sector Performance 
            This work evaluates how the agricultural sector has performed thus far losing indicatives like output and employment
            In terms of employment, agriculture is by far the most important sector of Nigeria’s economy, engaging about 70% of the labour force- though agricultural holdings are generally small and scattered; and farming is often of the subsistence variety characterized by simple tools and shifting cultivation. These small farms produce about 80% of total food. About 30.7 million hectares (76 million acres) or 33% of Nigerian land areas are undue cultivation. The economic benefits of large scale agriculture are recognized, and the government favours the formation of cooperative societies and settlements to encourage industrial agriculture, however, large scale agriculture is still not common.
            According to Tomori (1979), government adopted a variety of measures to reduce unemployment level. In this regards, some state governments adopted farm settlement schemes as a means of creating additional employment in the rural areas. The basis of the scheme is that selected young men should be trained and then established on these settlements, where they are required to develop their holdings under the necessary supervision.
            Agricultural sector output as proxied by its contribution to GDP averaged 50.2 percent during the period 1960-70. Afterward, its contribution declined persistently, reaching as low as 21.8%. Evaluating the SAP period, the sector’s contribution increase to 41.2 percent in 1986-90 and in sequent period declined (CBN report, 2000).
            According to the CBN report (2000), the various decline in agricultural production index especially 1970 -1980 and the low growth in the period 1981-1985 were attributed to the distortion in relative prices brought about by the progressive appreciation of the naira during the oil boom era. As a result, the Nigerian agricultural production lost competitiveness as international prices were often below domestic costs. There was a relative change during the SAP period which saw a sharp increase in production (1986-1990) which reflected the favourbale response of agricultural production to SAP measures. Available information indicates that the growth rate of aggregate agricultural production between 1986 and 1990 was 7.5 percent which was significantly higher than the pre-SAP period dominated by negative growth rates (CBN report, 2000).
            As noted earlier, the agricultural sector performance remained relatively low and declining the 90s according the CBN repot (2005), the aggregate index of agricultural production was  175.5 in 2004 and by2005 it stood at 186.9 (1990=100) which is about 6.1 percent increase in 2004 and 6.5 percent increase in 2005. This performance is above the target of 6 percent set for the agricultural sector in the National Economic and Development Strategy (NEEDS) programme.
            Some of the growths recorded in this sector in recent years are attributed to the Federal government’s strong support for the agricultural sector in general. Various supply of fertilizer and other inputs valued at N9.0 billion were procured and distributed to the thirty-six states and FCT, River Basin Development Authorities (RBDAs) and the National Special Prgoramme for Food Security (NSPFS) at 25 percent subsidy, all in 2065. Equally worthy of note is the prohibition of the importation of fruit juice, vegetable oil, poultry and related products and the intensification of the export for cassava which  served as motivation to fanners toe expand production.
            Other contributory factors were the operationalization of the Presidential initiative on Rice, Cassava, Vegetable Oil, Tree crops, Livestock, Fisheries and Aquacultures development, Rubber development and Tropical fruits. A total of N1.1 billion, including the N687-3 million proceeds from 10.0 percent surcharge on rice importation was released for the take-off of crops related initiatives; and another N1000 million was released for the livestock’s initiatives (CBN report, 2005).

2.5       Agricultural Sector Policies       
            Major sectoral policies for agricultural ‘development which were in operation in the SAP period included those on agricultural research, agricultural extension and technology transfer, input pricing and subsidy, water resources and irrigation, and land development. Their key elements are outlined as follows (Okunmadewa and Olayemi 1999):
Agricultural Research Policies:     
            Agricultural research policies in Nigeria have undergone many changes over several decades. But the broad objective of policies has always been the promotion of scientific investigations into agriculture with a view to developing viable new technologies that are well adapted to Nigerian conditions. Although there have been many changes in the number of cultural research institutes in the National Agricultural Research System (NARS) and in their mandates, the major reforms that have progressively aired since the 1970s concern the setting up of institutional mechanisms the national coordination of agricultural research and for a stronger linkage between agricultural research, extension, and farmers. In the process, there were relocations of some research institutes and changes in the supervisory ministries or agencies to which agricultural research institutes were assigned.
            One relatively recent institutional change in respect of agricultural research and development in the country involves the creation of the National Agricultural Research Project in 1991 to fund priority agricultural research, strengthen agricultural research institutions, and strengthen the agricultural research-extension-farmer linkage.
Agricultural Extension Policies
            The agricultural extension and technology transfer policy objective was to promote the adoption of new agricultural technologies by farmers through a nationally coordinated extension service system. The basic strategy involved the use of a unified agricultural extension system under the aegis of statewide ADPs. An important, relatively recent development in agricultural research and extension in the country involved the creation of institutional arrangements for a strong linkage between agricultural research, extension, and farmers. In 1987, the National Agricultural Extension and Research Liaison Services evolved through a long process of mutation to become the organ or the planning and coordinator of agricultural extension liaison nationwide and for conducting research on technology transfer and adoption.
Agricultural Input Supply and Pricing:      
            A major thrust of agricultural input supply and pricing policy in recent years as the withdrawal of Government from agricultural input procurement, distribution, and pricing activities. In this regard, Government disengaged itself from the procurement and distribution of fertilizer, petroleum products, seed, and agrochemicals through a regime of deregulation and commercialization while market forces largely determined their market prices. Most input price subsidies were also withdrawn. But government kill retained its ownership of petroleum refineries and fertilizer plants.

Water Resources Development and Irrigation Policy:   
            The network of eleven RBDAs established in 1977 still remains he major institution for water resource development and irrigation in the country. However, the RBDAs were partially commercialized in 1992 as a result of which some of the subsidy on irrigation water supplied to farmers was removed. The move towards full commercialization was expected.
Land Development Policy      
            The implementation of land development policy in the country was largely the responsibility of a National Agricultural Land Development Authority (NALDA) established in 1991-NALDA’s mandate covered the provision of strategic support for land development and the promotion of the optimum utilization of the nation’s rural land resources. However, NALDA proved to be ineffective and was subsequently scrappted.

Community Exchange Market:
            The establishment of a private-sector commodity and futures exchange market was first proposed in the 1995 budget to fill the vacuum created by the abolition of commodity boards. However, nothing came out of this proposal.
Other Policies:
            Privatization the policy of privatizing important public-sector enterprises has been in existence for many years, although the implementation has not smooth. A Bureau of Public Enterprises was established but its impact was not much felt. However, a law was proposed under the 1999 budget to give stronger legal backing to privatization. There were also proposals to strengthen the Bureau of Public Enterprises for a more efficient implementation of privatization programs. Employment policy in pursuance its employment policy, government established a new agricultural program for youth employment to complement the existing employment promotion activities of the National Directorate of Employment (NDE).

2.6       Effects (of the polices) on Agricultural Output and Growth
            Before the past (Nigeria) administration assumed power in 1999, agriculture was growing at an average of about 2.8 percent annum, mainly as a result of acreage expansion. Subsequently, with the reform agenda of the democratic government and better macroeconomic policies, the country witnessed some improvements in the business environment and productivity. Through the various presidential initiatives, constraints confronting different commodities are being addressed one after the other. According to the CBN (2005), the cumulative effect of these reforms is that the agriculture sector has been growing at between 5.5 percent and 7.5 percent in the last five years.
            The presidential initiative committees met at regular intervals to brief the president, and the composition of each is usually stakeholder; meaningful progress is being recorded on all fronts. One of the most successful initiatives is the National Cocoa Development Committee (NCDC), which is made up of powerful representation throughout government. The committee is having a positive impact on the cocoa economy of Nigeria. The only concern of scholars and planners is how to institutionalize some of these initiatives such that, when the country elects a non-farmer as president, these initiatives will not be discontinued.
            According to the World Bank (2006a) report, the fundamental cause of low agricultural productivity in Nigeria is the very low use of modern technology evidenced in weak research and extension, limited use of improved seed varieties (and breeds) and lacks of irrigation. In addition, weak human resource and skills bases are also factors. Nigeria’s national research system has enjoyed only limited success in generating new technologies that have been taken up by farmers. This is due to:
(i)        Poor funding of public research organizations;
(ii)       Weak coordination within the Nigerian agricultural research institutes (NARIs), resulting unnecessary duplication of effort;
(iii)     A tendency for research to be supply driven, with little accountability to farmers. Public institutes responsible for conducting agricultural research in Nigeria have been undefended, especially under military regimes.
            Within the NARIs, budgets have remained flat even as staffing has increased, forcing severe cutbacks in operating budgets. Lack of systematic collaboration between research institutions in the agricultural sector has created sub-optimal allocation of resources characterized by duplication of effort in some areas and underinvestment in others. Farmers have had limited influence over the orientation of research, leading to the development of technologies that do not address farmers’ problems. World Bank report (2006).
            Another closely related factor is the fact that extension services in Nigeria are delivered mainly through public agencies known as the ADPs. Many of the state-based ADPs were established and empowered with World Bank credit facilities in the late 1970s and early 19805. Then, they were actively engaged in the provision of integrated agricultural and rural development services. They were quite successful but suffered lack of sustainability when the credit expired. Some private agribusiness firms, mainly input dealers, provide extension advisory services to their clients, but the coverage is limited to a few corps. Public agricultural extension programmes in Nigeria are vested in all three levels of government. The weakness of the extension system is primarily caused by chronic underinvestment within each level. Similar to the research system, the extension system lacks accountability to farmers.
            Starting in the 19803, the federal government established a unified agricultural extension system. Although coordinated at the federal level, this system is implemented through the ADPs, which are run by the state Ministries of agricultural and Natural Resources. At the local level, many local government authorities (LGAs) maintain agricultural units that offer extension services. Recently, all states agreed to standardize extension service delivery through the LGAs. This common approach has met with limited success, World Bank (2006).

2.7       Incidence of Poverty in Nigeria       
            Nigeria is potentially Africa’s richest country. As the world’s sixth largest producer of crude oil, with huge reserves of mineral and agricultural riches and manpower, it should be enjoyed some of the highest global living standards. But available indicators points, ironically, to some of the lowest living standards in Africa, for a large majority of Nigeria’s 150 million people. And the latest signs are that the situation may be getting worse.
            Survey conducted by Nigeria’s Federal Office of Statistics show that in a 16 year period that began in1980 (the year the oil boom years of the 1770s began to go burst), the percentage of Nigerians living in poverty rose from 28 percent to 66 percent. Numerically, while 17.7 million people lived in poverty in 1980, the population living on less than US $1.40 a day rose to 67.1 million by 1996. within the same period the percentage of the rural poor increased from 29 percent to 70 percent, while the share of the poor in the urban areas rose from 18 to 55 about US $0.70 a day), increased from six percent to 29 percent of the population. Equally telling was the geographical distribution of poverty within the country. While the percentage of the poor ranged between 55-60 percent in the south, in the north they ranged between 70-78 percent of the population. World Bank figures for Nigerian’s gross national product per capita also confirm this trend. From a peak of US $780 in 1981, GDP fell to an all time low of US $220 in 1994 before inching upwards to US $310 in 1998. Inflationary pressures since then imply a further decline. Nigeria’s pervasive poverty occurred in spite of the fact that between 1970 and 1999, the country earned and estimated US $320 billion from the export of crude oil. “Despite its oil wealth, Nigeria has performed worse, in terms of basic social indicators, than sub-Saharan Africa as a whole and much worse than other regions of ≠e developing world, such as Asia and Latin America,” says a Situation Assessment Analysis published in 2001 by Nigeria’s National Planning Commission and the United Nations Children’s Fund (UNICEF). “At the heart of the problem,” the assessment adds, “has been a crisis of governance and public management, which has its roots in the competition among rival elites and their ethno-regional constituencies for control of the huge rents that accrue to the state from the operations of the petroleum industry.” With a population comprising more than 250 ethnic groups, of mainly Christian and Islamic persuasions, Nigeria was beset. With ethno-religious rivalry right in the early days of independence from Britain in 1960. this degenerated into three years of civil war when the southeast attempted to secede as Biafra. The end of the civil war in 1970 coincided with the oil boom years and the country’s emergence as a major oil exporter. But in the following years dominated by military and civilian rulers from the mainly Muslim north, the oil wealth was largely mismanaged. Most of it was dispensed as political patronage through fraudulent contracts awarded by those in government to cronies. “Most of the country’s oil wealth was frittered away and nothing was saved for the rainy day”, Tunde Alao, an economist, told IRIN. “The result was that once the oil boom years ended in the early 19808 the country was beset with a monumental economic crisis. The worst hit was the poor, who got no benefits from the upswing of national income during boom years”. Faced with severe balance of payments problems in the mid 1980s, the then military ruler, General Ibrahim Babangida, adopted International Monetary Fund-and World Bank- advised structural adjustment programs (SAP). The key objective of SAP was to ensure Nigeria serviced its external debt of US $28 billion and maintained macro-economic liability, while cutting back on social spending. While a growth rate of 5.4 percent a years was achieved between 1987-92 (against 1.8 percent a year from 1981-86), the proportion of the core poor rose from 12 to 14 percent within the period. It continued to grow in the subsequent years. Starved of aids, social service institutions began to decay and service delivery in schools and hospitals sharply declined. (The World Bank estimates that public spending per capita on health is less than $5 and as low as $2 in some parts of Nigeria, contrary to $34 recommended for low-income countries by the World Health Organization)/ infrastructure and utilities,  under the weight of mismanagement for years, also began to collapse. At present, about one in five Nigerian children die before the age of five. The implication being that a baby born in the country is 30 times more likely to die than one born in an industrialized country. Similarly the risk of maternal death in Nigeria is 100 times higher than in an average industrial country.
            More than half of all adults in the country are illiterate. In 1998 Nigeria ranked 151, near the bottom of 174 countries assessed under the United Nations Development Programme’s Human Development Index. “The vicious circle set in motion by widespread poverty accounts for the bourgeoning rate of crime in Nigeria,” said Aloa. “Crime was not only domiciled in the country, it was also exported as thousands of desperate young Nigerians moved aboard, becoming involved in various criminals rings engaged in fraud, drug and human trafficking.” Among the economic migrants, he said, are also thousands of professionals who left Nigeria to work in different parts of the world. “Many of them were trained at government expenses, but they have been lost to other countries where some have distinguished themselves in their professions,” Alao added. On his election to end more than 15 years of military rule in 1999, President olusegun Obasanjo acknowledged ta fighting poverty was one of the most daunting tasks facing his government. Nevertheless, he set a goal to reduce the population of Nigerians in poverty by half by 2015. Achieving such a target would require an economic growth rate of 7-8 percent a year for 15 years. In his first three years in office, he has recorded an average growth rate of 2.8 percent yearly. Perhaps, realizing that no dent has been made on poverty, Obasanjo’s government has developed an Interim Poverty Reduction Strategy. Under this plan, he is seeking the assistance of donors to work on four key areas, identified as youth empowerment, development of rural infrastructure, social welfare services, as well as natural resource development and conservation. Overseen by the National Poverty Eradication Programme, chaired by the president himself, it has set a target of ending absolute poverty in 10 years.

2.8       The Role of Agriculture in Poverty Reduction
            The strong link between increasing rural incomes and growth in the wider economy were central to the success of the green revolution in accelerating economic growth. These links worked well in large Asian countries, where increase rural incomes were largely spent on locally produced goals and services. Some commentators (Ellis, 2000) question whether these linkages remain as strong today, particularly in Africa. They argue that in many situations, additional income is increasingly likely to be spent on imported consumer goods and agricultural inputs rather than locally produced goods. This, they believe, limits the impact of agricultural growth on the rest of the economy (DFID, 2005).
            Given the scale and extent of these challenges, some skeptics suggest that agriculture’s role as a key source of growth and poverty reduction is limited (Maxwell, 2004), but other commentators strongly refute this (Hazell, 2005). While conditions for smaller and poorer farmers are undoubtedly challenging, the more optimistic (Lipton, 2004 and Hazell, 2005) believe that productivity gains are possible with the right polices and will have a major impact on growth and poverty. Accelerating agricultural growth where it is most needed will undoubtedly be harder than in the past. But with political will, substantial investment and well formulated and impact on growth and poverty. Accelerating agricultural groth where it is most needed will undoubtedly be harder than in the past. But with political will, substantial investment and well formulated and implemented polices, growth is possible. The links between agriculture and economic transformation remain strong.
            Market prospects may be better than many believe. While there is little hope of reversing the long term decline in global agricultural prices, increasing demand in India and China –particularly for grain used in feeding livestock –offers some prospect of international prices stabilizing (Song, 2004). Domestic and regional markets offer significant growth potential. Africa’s domestic consumption of food staples alone is estimated at around $50 billion a yea, more than five times greater than the value of its traditional commodity exports. Food consumption is expected to double by 2020 (Diao and Hazell, 2004). Staples include cereals, roots and tubers and traditional livestock products that are produced and consumed mainly by the poor.
            As Africa currently imports 25% of its food, the potential for substitution also exists. Although international grain prices are at historically low levels, the high cost f transporting food internally means that locally produced grain is till able to retain a market share. But high transport and marketing costs also limit access to wider domestic markets for domestic farmers. Soon balance, making strategic investments to reduce these costs should help mild local markets and make local farmers more competitive.
            The link between increasing agricultural growth and the wider economy also appear to be strong. Growth outside agriculture also helps to stimulate the agricultural sector, particularly increasing urban demand for higher value products. For today’s poorest countries (including Nigeria), other sources of growth may exist, but few can match agriculture in is ability to reduce poverty and stimulate wider economic growth. For example, mineral wealth has not provided a platform for board-based poverty reduction and economic growth as Nigerian case has shown. Without increasing incomes and affordable food that  dynamic agricultural sector provides, economic transformation will be slow and economic transformation will be slow and economies will remain trapped in a cycle of low growth and poverty (DFID).
            The issue is not one of agriculture growth being superior to that from sectors, but it being an essential complement to it, particularly in the early stages of development. The pace of agricultural growth in today’s poor countries will probably be slower than in the green revolution and it will differ between countries will probably be slower than in the green revolution and it will differ between countries, reflecting local conditions. The participation can be realized and is critical to poverty reduction. Achieving this will require more effective investment and better polices.
            Rural households generate income from agriculture or employment in non-farm rural activities. Agricultural income originates from subsistence production, revenues from the sale of produce or employment in agriculture. The rural non-farm sector provides goods and services linked to agriculture, such as input preparation, repair of machinery and implements, output processing, transport and marketing. Income earned from agricultural activities creates demand for the output of small rural enterprises. It takes few skills to establish or work for such enterprises, so they are readily accessible to poor. Initial productivity-induced growth in agricultural output will create multiplier effects in non-farm economies, increasing the incomes of these involved. It will also raise the incomes of those directly engaged in farming.
            This process cannot work, however, if there are marked inequalities in access to agricultural and other assets, especially land. Large capital-intensive holdings tend to use inputs imported from abroad or from large towns and income is often invested outside the immediate area on which the farm is located; interaction with local economies will be limited. Small farms are much more fully integrated with local markets even if, ultimately, they are significant suppliers of export goods.
            The above discussion shows that achieving massive and sustainable poverty reduction entails (a) targeting hunger directly so as to increase the productivity and productive potential of those who suffer from it, and allow them to take advantage of the opportunities offered by development and (b) stimulating agriculture and rural devilment, both essential for both overall economic growth and sustainable reductions in poverty. The productivity handicap caused by hunger must be dealt with directly if agricultural development is to proceed as it should. People in abject hunger must have enough to eat if they are to share the benefits of agricultural and rural growth. The vicious circle of underdevelopment and hunger. Hungry people must have better access to food, which requires direct assistance. The vicious circle must be broken. At the same time, concentration of poverty in the rural areas implies that growth in agriculture and overall rural development are essential for a sustainable exit from poverty.
            Creating a synergy between direct action against hunger and measures to stimulate agriculture and the rural sector is fundamental to the twin-track strategy proposed here. The two tracks are complementary. Hungry people must have better access to adequate food as a precondition of their participation in development. At the same time, increase in agricultural productivity and production will increase rural economic activity and expand employment opportunities in the farm and rural non-farm sector. A case of “maximum synergy” is one in which safety nets and food assistance programmes are supplied with local production: supplying safety nets with locally produced food whenever possible will lead to an expansion in market opportunities, farm output and employment, while providing food to those who need it.
            In general, agricultural development by small farmers in conjunction with policies to enhance the capabilities of the poor to access food, offers the best hope of a swift reduction in mass poverty and hunger. This is the strategy advocated in this research work, and the resource mobilization aspects of it are discussed in detail in the following subtopic.

2.9       Financing Agriculture and Poverty Reduction in Nigeria
            Resources for rural-sector investment may be private or public, external or internal. Information on financial investment in primary agriculture is available for some items, but there is little reliable information on levels of investment in non-farm activities.
            Most of the capital for development of the agricultural sector will come from private sector investment, especially from farmers themselves.  However, public investment in agriculture is an essential element in attracting private sector investment. National investments in irrigation, research and rural infrastructure, technology generation and dissemination, natural resource conservation and standard setting and monitoring are necessary to increase productivity, reduce transaction costs and improve the competitiveness of agriculture development in countries with widespread undernourishment are illustrated by relating government expenditure on agriculture to the size of the agricultural labour force. The extent to which government expenditures on agriculture reflect its importance in an economy is shown in an “agricultural orientation index”, in which the proportion of public-sector agricultural expenditure is divided by the share of agriculture in GDP. The higher the index, the closer expenditure on agriculture reflects the share of agriculture in GDP. Analysis of trends in government spending on agriculture may partly explain the trends in capital formation discussed above. Public and private investments in agriculture are complementary. Public investment in essential public goods must be stepped up to create the conditions and incentives for private investment, otherwise under-investment will continue. Inadequate government spending and low gross capital formation seriously compromise agricultural productivity in countries with widespread poverty and undernourishment. Productivity figures for the various categories mirror the differences in capitalization of agriculture. Two capital stock per agricultural worker is reflected in low value-added per agricultural worker ( a measure of labour productivity) (FAO, 2001).

2.10    Agricultural Funding in Nigeria (Government Budget)   
            According to Moguses et al (2008) Public expenditure on agriculture in Nigeria is exceedingly low. Less than 2 percent of total federal expenditure was allotted to agriculture during 2001 to 2005 and about N15.2 billion in 2006. This figure and percentages are far lower than spending in other key sectors such as education, health and water. This spending contrasts dramatically with the sector’s importance in the Nigerian economy and the policy emphasis on diversifying away from oil and falls well below the 10 percent goal set by African leaders in the 2003 Maputo agreement. Nigeria also falls far behind in agriculture expenditure by international standards, even when accounting fro the relationship between agricultural expenditures and national income. The spending that is extant is highly concentrated in a few areas. Three out of 179 programs account for more than 81 percent of federal capital spending, of which nearly three-quarters go to government purchase of agricultural inputs and agricultural outputs alone. The analysis finds that many of the Presidential Initiatives – differ greatly in target crops, technologies, research, seed multiplication, and distribution –have identical budgetary provisions. This pattern suggests that the needs assessment and costing for these initiatives may have seen inadequate, and that decisions may have been based on poetical considerations rather than economic assessment. Budget execution is also poor. The Public Expenditure and Financial Accountability (PEFA) best practice standard for budget execution is no more than 3 percent discrepancy between budgeted and actual expenditures. In contrast, during the period covered by the study, the Nigerian federal budget execution averaged only 79 percent, meaning 21 percent of the approved budget was never spent.
            One could conclude that though the Nigerian government over the years has played its role in financing agriculture through the allocation given to the sector in its expenditure profile, yet the allocation has always falling below the 10% of the budget recommended.

2.11    Agricultural Credit Guarantee Scheme in Nigeria
            The Nigerian Agricultural Credit Guarantee Scheme was set up in 1977 with a capital fund of N100 million to stimulate lending to small farmers. It was slowly recapitalized because the operating costs and claims in several years exceeded investment income. In 1988 about 15 percent of the guaranteed loans were reported in default (Njoku and Obasi, 1990). The Scheme has made various contributions to the development of agricultural sector in Nigeria and in recent years, various efforts has been made by the government to improve the scheme.
            In a vanguard report (2009), the Central Bank of Nigeria (CBN) in collaboration with the Federal government of Nigeria, represented by the Federal Ministry of Agriculture and Water Resources, has established a Commercial Agriculture Credit Scheme, otherwise referred to as CACS, for promoting commercial agricultural enterprises in Nigeria, as part of its developmental role. According to communiqué released by the Central Bank of Nigeria, the fund will complement other special initiatives of the Central Bank of Nigeria in providing concessionary funding for agriculture such as the Agricultural Credit Guarantee Scheme (ACGS) which is mostly for small-scale farmers, Interest Draw-back scheme, Agricultural Credit support scheme, etc.
            The source of fund for the scheme shall be form the proceeds of the N200 billion bound to be raised by the Debt Management Office (DMO). The fund shall be made available to the participating bank(s) to finance commercial agricultural enterprises. In addition, state governments and the FCTA could also borrow up to 20 percent of the bond proceeds for on-lending to farmers. The ceiling to the states may be reviewed as the need arises, by the Project Management Committee (PMC).
            According to the Central Bank, the objectives of the scheme are:
·        To fast track development of the agricultural sector of the Nigerian economy by providing credit facilities to commercial agricultural enterprises at a single digit interest rate.
·        To enhance national food security by increasing food supply and effecting lower agricultural produce and product prices, thereby promoting low food inflation.
·        To reduce the cost of credit in agricultural production to enable farmers to exploit the potentials of the sector.
·        To increase output, generate employment, diversify the revenue base, increase foreign exchange earnings and provide input for the industrial sector on a sustainable basis.      
            According to the CBN (2009), the key agricultural commodities to be covered under the scheme are cultivation of target crops (rice, cassava, cotton, oil palm, wheat, rubber, sugar cane, Jatropha carcus, fruits and vegetable), Livestock (daily, poultry, and piggery), and fisheries. Credit supply to the target commodities shall be administered along the entire value chain of production, storage, processing, market and enterprise development.
            For the purpose of this scheme, a commercial enterprises, according to the CBN, is any farm or agro-based enterprise with agricultural assets (excluding land) of not less than N350 million for an integrated farm with prospects of growing the assets to N500 million within the next three years and N200 million for non-integrated farms/agro-enterprise. This however, does not apply to loans obtained by state government for on-lending.


Participating Commercial Banks:         
            The Central Bank of Nigeria shall select, through a competitive process, the banks that will participate in the scheme with adequate considerations for the bank(s)’ capacity, assets, branch network, liquidity, experience in agricultural lending, credit risk exposures, etc. The banks bear the credit risk of the loans. For this phase of the scheme, the CBN has approved two banks to administer the fund namely, United Bank for Africa, Plc (UBA) and First Bank of Nigeria, Plc (FBN).
Qualified Beneficiaries   
For corporate and large-scale commercial farms/agro-enterprises to participate in the scheme, the borrower shall be a limited liability company with asset to N500 million in the next three years and complies with the provision of the company and Allied Matters act (1990). The firm should have a clear business plan, provide up-to-date records on the business operation if any, have an out growers’ programme, and where appropriate, satisfy all the requirements specified by its lending bank.
            For medium-scale commercial farms/Agro-Enterprises to participate in the scheme the borrower shall b e a limited liability company with asset base of not less than N200 million and having the prospect to grow the net asset to N350 million in the next three years and complies with the provision of the company and Allied Matters act (1990), among others.
            To participate in the scheme a state government/FCT shall submit an expression of interest to put in place appropriate institutional arrangements by setting up a secretariat (Special Unit or Agency) staffed with experienced agricultural experts and credit officers dedicated to the administration of the fund to be borrowed, which shall be approved by the PMC.
            In addition, participants shall sign an irrevocable standing payment order (ISPO) in favour of the CBN, to deduct at source the total amount in default from the state(s) on a monthly basis of state revenue allocation on behalf of the PB.
            The key stakeholders of the scheme include the federal government of Nigeria, Central Bank of Nigeria, Federal Ministry of Agriculture and Water Resources, Debt Management Office, participating banks, borrowers (farmers, Agro-Processors, marketers, state governments, and the FCT).

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