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