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.
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).