Role Of Agriculture To Economic Growth And Development Economics Essay

Agriculture is an important sector in the developing world. It contributes to economic growth and development as well as a major employer to majority of the people of Sub-Saharan Africa including Nigeria, especially those in the rural areas. This study investigated the role of agriculture to Nigeria’s economic growth and development. Secondary data were used for the analyses and were obtained from various publications of the Central Bank of Nigeria (CBN) and the National Bureau of Statistics (NBS). Variables used for the estimations included overall gross domestic product (GDP) of Nigeria, agricultural GDP, government spending on agriculture, credit to agriculture and the population engaged in agriculture. The data cover the period between 1981 and 2010. Growth and Cobb-Douglas production models were estimated. The results showed that overall GDP, agricultural GDP, and government spending to the agricultural sector of Nigeria generally assumed upward trends during the period. Credit to agriculture and government spending to the agricultural sector were the factors found to significantly influence the contribution of agriculture to national economic growth and development. It is concluded that agriculture continues to play important role in the economic growth and development of Nigeria. It is recommended that policies should be formulated to encourage the flow of more credit to the agricultural sector of Nigeria. Besides, it is important that the government of Nigeria to increase its spending on the agricultural sector since this positively and significantly influence the contribution of agriculture to national economic growth and development.

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Nigeria is one of the largest countries in Africa, with an estimated population of about 158 million (World Bank, 2010). The country has highly diversified agro-ecological conditions, which makes it possible for the production of variety of agricultural products. Furthermore, agriculture constitutes one of the most significant sectors of the economy (Manyong, et. al., 2005). Agriculture in Nigeria employs about 70% of the working population and contributes with about 60% to the national income (Oluwasanmi, 1966). Its contribution to Gross Domestic Product (GDP) accounted for about 40% in 2010 (CBN, 2011). During the early days of independence, Nigeria was and still is relatively self-sufficient in food production, and foreign exchange earnings from agricultural exports have been used over the years to support in financing imports needed for economic growth and development (Anderson, 1970).

The role of Agricultural production in Nigeria is not only to provide the food needed to feed the rapidly growing Nigerian population, but also to provide the money and materials needed for industrialization and for bringing the country into the industrial and technical age (Oyenuga, 1967). In order to carry out this role, the agricultural system needs to be reorganized and new techniques of production have to be introduced, such as the use of more efficient implements, improved seed varieties and fertilizers. To do this, the country not only needs to co-ordinate its agricultural research projects and provides capital but also to make available trained field staff who can ensure the acceptance of these innovations by peasant farmers (Oluwasanmi, 1966). This is because majority of the peasant farmers live in rural areas where there is a high level of illiteracy and they hardly accept change.

Despite the fact that Nigeria is buoyantly endowed with agricultural and other natural resources, the agricultural sector is still growing at a very slow rate. It is only a little over half of the country’s agricultural land is under cultivation (Manyong et al, 2005). Increased use of mechanization will help, but this is not going to be easy given that about 63% of the farms in Eastern Nigeria and 45% of them in Western Nigeria are less than an acre in size and many of them are much smaller (Oyenuga, 1967).

The agricultural sector remained weak during the oil boom decade of the 1970s, and this accounted largely for the declining share of its contributions to economic growth and development of the country. The trend of the share of agriculture in national GDP reflects a substantial variation and long-term decline from about 60% in the early 1960s through to about 49% in the 1970s and only about 22% in the 1980s. It is believed that unstable and often-poor economic policies (of pricing, trade and exchange rate), the relative abundance of the sector and the negative impact of oil boom were all important factors responsible for the decline in agricultural sectors contributions to national economic growth and development. Since the oil boom of the 1970s, there has been a severe increase in the incidence and drama of poverty in the country as a result of the unstable performance of the agricultural sector, which employs majority of the poor.

As a result of the dwindling performance of agriculture in the country, government have over many years formulated and implemented various policies and projects aimed at putting back the agricultural sector to its vital place in the economy. But with evidence from empirical literatures, no significant success has been achieved due to several problems confronting the performance of the sector (Yusuf, 2005).

However, the contribution of agriculture in both gross domestic product (GDP) and non-oil GDP increased in the 1981-2000 periods. The share of total bank credit going into the agricultural sector increased rapidly between the 1981-1985 and 1991-1995 periods and then declined in the 1996-2000 periods. The share of the federal Government’s capital expenditure going to the agricultural sector declined immensely over the periods. The share of total employment by the agricultural sector also declined. Generally, there was unstable growth performance of the agricultural sector between the periods 1981 to 2000, with some evidence of inconsistencies of trends, probably due to uncertainties in policies and policy implementation.

Some of the problems leading to poor performance of the agricultural sector in the country include technical issues, resource constraints as well as socio-economic problems and organisational constrains. It has been observed that in past policies of the pre-structural adjustment period, sector-specific agricultural policies were made to improve agricultural marketing, to cut down production cost, and to enhance product prices as incentives for increased agricultural production. Important policy instruments are for agricultural commodity marketing and pricing, input supply and distribution, input price, Subsidy, land resource use, agricultural research, agricultural extension and technology transfer, agricultural mechanisation, agricultural cooperatives, agricultural water resource and irrigation development. Macro policies, institutional policies and legal frameworks complemented sector-specific policies. The structural adjustment period was enhanced more by structural adjustment policies.

Problems to agricultural policy strength include policy instability, policy inconsistencies, weak policy formulation, poor policy implementation, and harsh institutional framework for policy coordination (Idachaba, 2005). With reference from the dual economy model, early writers predicted economic development as a growth process that needs the re-allocation of factors of production from a weak, low-productivity agricultural sector to a modern and commercialized industrial sector with higher productivity and more returns (Lewis, 1954). As a primary sector, agriculture was seen to contribute significantly to economic growth and development by providing labor and food to the industrialization process. However, this idea was taken away by the era of the Green Revolution in Asia during the late 1960s and early 1970s. The possibility of restructuring traditional agriculture into a modern sector shows agriculture’s capability as a growth sector and its effective role in emphasizing broader development (Adelman, 2001).

Although the advantage of connectivity between agriculture and non-agriculture in achieving the growth and development process had long been recognized (Hirschman, 1958, Johnston & Mellor, 1961), post-Green Revolution economists stressed the role of agriculture in rural growth and development (Haggblade, Hammer, & Hazell, 1991; Haggblade, Hazell, & Brown, 1989; Hazell & Haggblade, 1991; Hazell & Roell, 1983). The vital advantage of agricultural growth on rural development was found to be effective in countries (e.g. Nigeria and other developing countries) where small farms dominated agriculture (Rosegrant & Hazell, 2000). Therefore, given massive rural poverty and small-scale farming in Africa, the “conventional wisdom of agriculture” emphasizes a strong role for agriculture in African growth and development. With reference to the conventional wisdom of agriculture, it is important that policy objectives to promote the role of agriculture in economic growth and development in Nigeria should be realistic and capable of transforming a backward agriculture, and at the same time would also encourage industrial growth and development.

The experience of other developing countries has shown that policies that promote industrial development at the expense of agriculture have resulted in food shortages and economic stagnation. Given Nigeria’s present stage of development, a large-scale industrialization scheme that will tend to shut out 70% of the population who are engaged in rural pursuits is not the best for the long-term interests of the country (Adeyokunnu, 1971). This is contrary to the idea behind early development strategies advocated by Rosenstein Rodan, Nurkse, and Hirshman among others, who emphasized industrial development as the main source of economic growth and development and were biased against the agricultural sector (Schiff and Valdes, 1998).

This work is principally concerned with showing empirically the role of agriculture to economic and development of Nigeria. It draws on the long standing empirical studies on the role of agricultural sector to economic growth and development across the world. Widespread rural poverty in Africa and the success of Asia’s Green Revolution suggests that agriculture is a key sector for African development. Since almost all rural households depend directly or indirectly on agriculture, and given the sector’s large contribution to the overall economy, it might seem obvious that agriculture should be a key sector in economic growth and development. Most African countries have failed to meet the requirements for a successful agricultural revolution, and productivity in African agriculture lags far behind the rest of the world. This has recently led to renewed debate within the international development community concerning the role of agriculture in African economic growth and development. This study will therefore contribute to the debate.

1.2 The Problem Statement

Decline on the role of the agricultural sector in terms of its contribution to Nigeria’s economic growth and development in the last three decades made the government to establish different agricultural schemes and programmes to enhance agricultural productivity in the country, which includes River Basin Development Authorities, National Accelerated Food Production Project, Agricultural Development Project, Operation Feed the Nation, Green Revolution, National Directorate of Food, Roads and Rural Infrastructure, Agricultural Credit Guarantee Scheme Fund, National Special Programme for Food Security, Root and Tuber Expansion Project as well as National Fadama I and II programmes. This shows that aagriculture has been an important sector in the Nigerian economy for many years, and is still a major sector even with the oil boom. Basically it generates employment opportunities for the growing population, reduces poverty and contributes to the growth and development of the economy.

Economic history provides sufficient evidence that agricultural revolution is important and a pre-condition for economic growth and development, especially in developing countries like Nigeria (Woolf and Jones, 1969; Oluwasanmi, 1966; Eicher and Witt, 1964). The basis of the problem in the Nigerian economy is as a result of poor concentration of the agricultural sector by the Government towards focusing more on a mono-cultural economy based on oil.

Agriculture was the mainstay of the Nigerian economy before the discovery, exploration and exportation of oil and over dependence on its revenue for economic expenditure. Agricultural export was contributing to GDP with about 72% between 1955 and 1969 before it fell down to 35% because of the oil crises of early 1970’s (CBN, 2002). Nigeria used to be one of the world leading countries in the exportation and production of some major agricultural products between 1940 and 1950. There is evidence from statistics which shows that the export of agricultural products in Nigeria accounted for over 75% of total exports in 1960 (Ekpo and Egwaikhide, 1994). This has changed in recent times as economic growth and development of Nigeria in recent times solely depend on the earning from oil exports that account for over 95%, but contribute with less than 25% in the real gross domestic product (RDGP). This over dependence on oil has affected the countries market forces as well as its economic growth and development (Okoh, 2004).

Because crude oil is an exhaustible asset, it is not advisable for Nigeria to depend on it for sustainable economic growth and development. Therefore, the need to push into competitive market in advanced countries with our agricultural commodities has to be considered, in order to achieve a prosperous economic growth and development in Nigeria (Thirlwall, 1999). Considering the large size of the Nigerian agricultural sector and its important role in the economy, positive reform and adjustment policies are needed in order to improve the overall performance of the country’s economic growth and development (Kwanashie et al., 1998). Besides the oil sector, agricultural sector contributes significantly to the Nigerian economic growth and development because of its rich resource base. Nonetheless, these endowments have to be used wisely so as to diversify the economy and reduce over dependence on the oil sector and on importation. As a result of unstable oil price and continues increase in the price of import goods, the Nigerian economy is not consistent. All these issues have negative effects on the country’s balance of payment, employment and other sectors productivity as well as the purchasing power of the people (Bukar, et al., 1997).

At present, impact of the Nigerian agricultural sector to economic growth and development of the country is not as it was in the past periods (NPC, 2000). Nigerian agriculture is still traditional as it was in the pre-independence period (Adewumi and Omotesho, 2002). Even with the existence of the two major rivers in the country (river Niger and river Benue) the agricultural sector is still predominantly rain fed (NPC, 2004). Productivity in the Agricultural sector has declined seriously over the years and this has led to high incidence of poverty levels (Jeter, 2004). Results from the World bank data indicate that over 70% of Nigerians are living below the poverty line (less than $1 per day), showing that there has been an astronomical growth in the level of poverty in the country most of which is associated to poor agriculture since from independence up till today (Chigbu, 2005). Those engaged in farming are mostly rural people, cultivating small area of land using traditional tools and getting low productivity (NPC, 2004). The problem therefore is that there is limited understanding of the role of agriculture in economic growth and development of Nigeria in recent times. This study seeks to address this gap by empirically examining the role of agriculture to economic growth and development of Nigeria.

1.3 The Research Questions

The questions that this study sought to answer are:

What are the trends and growth of agricultural gross domestic product (AGDP) relative to the overall gross domestic product (GDP) of Nigeria?

What have been the commitments of successive governments in Nigeria to the agricultural sector in terms of public spending in the sector?

What have been the contributions of agriculture to the economic growth and development of Nigeria over the past three decades?

1.4 The Research Objectives

The main objective of this study is to examine the role of agriculture to economic growth and development of Nigeria. Specifically, the study seeks to:

Describe the trends and growth of agricultural gross domestic product (AGDP) in relation to overall GDP of Nigeria.

Examine the trends and growth of spending of successive Nigerian governments on the agricultural sector.

Estimate the contributions of agriculture to economic growth and development of Nigeria over the past three decades.

1.5 Justification of the Study

Policy makers can make use of the outcome of this study in multi-dimensional form. This can be done in terms of interwoven nature of rural employment with agriculture, food security and agricultural productivity. This is because the findings will provide the basis that economic growth and development in Nigeria should be led by agriculture and that the success of plans and policies implemented in the other sectors are depended on agricultural developments for their successful implementation.

The outcome of the study will also help policy makers to critically examine the various key possibilities of promoting economic growth and development in Nigeria with regards to the role of agriculture in economic growth and development. Some of these which are of relevant to policy may include issues of:

How different alternative economic growth and development states can be achieved using agricultural sector’s contribution with the view to decide which one is the best.

How societal welfare can be improved from a lower stage to a better stage using agricultural sectors contribution to the economy.

How to identify all areas in which the agricultural sector fails and to consider corrective measures.

How to evaluate different policy options that have been used to improve agricultural sector as well as determine their implications and consequences on the economic growth and development of Nigeria.

How to provide a framework in which different agricultural growth policies can be compared using value judgement and common sense.

How to make a critique of different postulates about how agricultural development policies can be improved so that it can provide a menu for better policy measures.

1.6 Scope and Organisation of the Study

The scope of this study is to look at the role of agriculture to economic growth and development of Nigeria spanning the last three decades (i.e. 30 years). The study is organised into five main chapters. Chapter one is the introduction which consists of the background to the study, the problem statement, the research questions, the research objectives, the justification of the research and the scope and organisation of the study. Chapter two is the literature review which consists of literature on Agricultural Production in Africa and Nigeria, Agricultural Production and Economic Growth and Development, Commitments of governments to Nigerian agriculture, Agriculture as a Source of Employment for Poverty Reduction, Finally, summary of the literature review and conclusions. Chapter three is the methodology employed in order to achieve the research objectives which consists of profile of Nigeria, the theoretical and model specifications, data types and sources of data. Chapter four is presentation of the results and discussions. Chapter five is the summary of the findings, conclusion and recommendations. After this are the references and appendix.

CHAPTER TWO

LITERATURE REVIEW

2.1 Introduction

This chapter presents an overview of the relevant empirical literature in the subject matter. The chapter is divided into five main subsections. The first subsection is presentation of Agricultural Production in Africa and Nigeria. The second subsection is presentation of Agricultural Production and Economic Growth and Development. Commitments of governments to Nigerian agriculture are presented in the third subsection. The fourth subsection brings to light literature on Agriculture as a Source of Employment for Poverty Reduction. Finally, summary of the literature review and conclusions drawn are presented in subsection five.

2.2 Agricultural Production in Africa and Nigeria

There is a growing argument over whether agriculture is still playing important role in economic growth and development in sub-Saharan Africa. Agriculture’s theorists explain that, in most of the African countries, only the agricultural sector has sufficient scale and growth-linkages to significantly influence aggregate growth and development. Achieving such growth and development will have to do with a large sector like agriculture, which accounts for one-third of gross domestic product (GDP) for the subcontinent as a whole, and an even larger share for two-thirds of African countries. Economists also explain that agriculture’s poor performance leads to inadequate investment and policies that are historically biased against the agricultural sector (Fan, Zhang, & Rao, 2004; Schiff & Valdez, 1992; Timmer, 2005). They show the large benefits from investing in rural infrastructure and agricultural technology, and the growth and development potential from catching up to the productivity levels of other developing countries. During the period from 1990 to 2004, African industry, including mining and mineral-based manufacturing, grew at 1.9% per year compared to 2.5% for agriculture (World Bank, 2006). This is an indication of the importance of agriculture to economic growth and development across Africa.

By contrast, there are others who doubt whether or not agriculture can successfully generate sufficient growth and development in Africa today. This doubt shows the poor performance of agriculture, weak institutions for rural growth and development, and worsening agro-ecological conditions in most of the African countries (Collier, 2002; Ellis, 2005; Maxwell & Slater, 2003). The large size of the agricultural sector may be the reason for Africa’s failure to grow and develop, especially since past experience forecasts a significant decline in the importance of agriculture over time in successfully developing countries (Collier, 2002). For those who argue that agriculture should not be put at the center of African growth and development, although the sector’s sufficient growth and development linkages proved very strong during Asia’s Green Revolution, it may not be so much in Africa because of a more integrated global environment (Hart, 1998). Border prices determine food prices more than domestic supply when imports can enter freely, which reduces the need to invest in domestic agriculture to maintain urban food prices and real wages and hence industrial competitiveness. Under these conditions, it is difficult for agriculture to play important role of economy-wide growth and development as well as facilitating the economic transformation shown by theory or witnessed in the past successes of other developing countries. Agriculture’s skeptics therefore tend to be more concerned of African industry, emphasizing that mining and manufacturing may bring viable alternative sources of growth and development.

Despite contrasting opinions on the relative importance of agriculture in generating overall growth and development, there should presumably be less contention surrounding the role of agriculture in poverty reduction, which is one of the key issues for achieving economic growth and development. This is especially so given the importance of agricultural incomes for Africa’s poorest populations. However, even among agriculture’s advocates, there are conflicting views over what should be the focus of an agricultural growth and development strategy for low-income Africa (Dorward, et al., 2004). Some suggest that the best opportunities for African farmers lie in high-value commodities and, given poor domestic demand in Africa, that production should focus on export markets. Small-scale farms are seen as irrelevant due to international competition and the growing difficulties of supply-chains for both domestic and foreign markets (Reardon, Timmer, Barrett, & Berdegue`, 2003). It is argued that rural dwellers should plan on diversifying incomes away from agriculture (Ashley & Maxwell, 2001) and focus on going to urban areas (Ellis & Harris, 2004). On the other hand, others argue that rural income diversification has been a reality in Africa for many years (Barrett & Reardon, 2000; Reardon et al., 2003) and has yet to achieve significant income growth. Furthermore, income diversification is not a significant positive phenomenon, especially if diversification is due to stagnant agricultural growth and development (Haggblade, Hazell, & Reardon, 2002) or if migration is as a result of growth in low-productivity urban activities (Lipton, 2004). The biggest market benefits for majority of African farmers comes from domestic and regional markets for staples/food crops (Diao & Hazell, 2004; Rosegrant, Paisner, Meijer, & Witcover, 2001).

2.3 Agricultural Production and Economic Growth and Development

Provision of sufficient food for the growing population puts agriculture at the center of current growth and development issue in developing countries. This is because the level of population growth in most developing countries is far more than the level of agricultural production and growth. Malthusian theory of population growth is becoming true in these countries; hence, the need to grow and develop agriculture to meet the food requirement of the people is very important. Looking at the Malthusian theory, if food supply fail to meet demand then food prices will rise. This will also have effect on workers’ wages and subsequently affect industrial profits, investment and overall economic growth and development in the society (Uniamikogbo, 2007).

On the supply of raw materials to the industrial sector, agriculture have been seen as the major requirement for industrial growth and development because of the sector’s role in providing the necessary raw materials for industries (Child, 2008; Uniamikogbo, 2007 and Abayomi, 2006). As a result of this, the need for increasing agricultural productivity has to be considered. There is the need therefore to put more emphasis on increasing domestic output rather than focusing more on the expansion of export to finance growing food export. This means that, agriculture is the most influential sector in developing countries. It should then make a significant contribution to the overall investment requirements needed by the industrial sector such as lowering the amount of raw materials supplied from abroad by increasing the output produced locally.

Agriculture has been the main stay of the Nigerian economy providing employment and source of livelihood for the teeming population. It contributes with over half of the GDP of the Nigerian economy during much of post-independence in the country. Nonetheless, the role it plays in the economic growth and development of the country has gone down over the years due to the overwhelming and dominant role of the crude oil sector in the economy, on which the country extensively depends. With the high food demand in Nigeria, the country has to make use of its abundant natural resources and to take advantage of its current democracy to increase the volume of crop production towards satisfying the food and nutritional requirement of the rapidly growing population and to ensure food security in the country (Enoma, 2010) . Therefore, agriculture can be characterized as the source of national wealth and economic growth and development in Nigeria.

Agricultural Development economists have researched significantly on how agriculture can best contribute to overall economic growth and development. Looking at Lewis theory of development, Todaro and Smith (2003) indicated that the underdeveloped economy consists of two sectors, which are the ancient and traditional agricultural sector characterized by zero marginal labor productivity and the modern industrial sector. In his historical approach to the process of economic growth and development, Rostow (1960) distinguishes five stages of economic growth and development, which are: Traditional society; Pre-conditions for takeoff; Take-off; Drive to maturity; and Age of high mass-consumption. According to Rostow, the take-off stage is the most important figure in the life of a society when growth becomes its normal condition. The significance and importance of the traditional society make a decisive breakthrough and a multiple interest gets built into the society structure with agriculture playing significant role at this stage. From this theory, it is evident that agriculture plays a significant role in the first three stages of economic growth and development (Traditional society, pre-conditions for takeoff and takeoff stages). The agricultural sector greatly influences industrial and economic backbone from which a country’s economic growth and development can take off. Therefore, beyond reasonable doubt, agricultural activities are usually concentrated and more practiced in the less-developed countries where there is an urgent need for rural transformation, redistribution, poverty alleviation and socio-economic growth and development (Stewart, 2000).

Indeed, agriculture has a significant role in an economy, without it a country will surely depend on importation from other countries to feed its population. The essential contribution of agriculture to economic growth and development has been an on-going subject of debate among development economist, several theorist argue that growth of the whole economy relies on the development of agricultural sector (Schuttz, 1964, Gollin, Parente and Rogerson 2002). The growth and development of the agricultural sector could result to national output increase through its effect on rural incomes and provision of resources for transformation into an industrialized economy (Eicher and Staatz, 1984; Dowrick and Gemmmell, 1991; Datt and Ravallion, 1998; Thirtle, Lin and Piesse 2003). Johnston and Mellor (1961) reported that agriculture improves and contributes to overall economic growth and development through various inter-sectoral linkages. Which include, provision of surplus labor to the industrial sector; supply of food for domestic consumption; creation of market for industrial output; provision of domestic savings and industrial investment and generation of foreign exchange from agriculture export earnings to finance import of intermediate and capital goods respectively. However, In addition to the above-mentioned direct market-based linkages, Timmer (1995) found out that agriculture indirectly contributes to economic growth and development through its caloric nutrient intake provision to the poor, food availability; stable food prices and poverty reduction.

Going by all the debated arguments, it is clear that agricultural growth and development has played a historically important role in the process of economic growth and development. However, acts from developed countries as well as developing countries indicate that agricultural sector has been the engine that contributes to the overall growth and development of a country’s economy. Agriculture therefore plays an important role in achieving economic growth and development.

2.4 Commitments of Governments to the Agricultural Sector of Nigeria

Successive governments since the post-independence era have made various commitments and these include reviews of policies regarding the agricultural sector in Nigeria. In every phase of the policy reviews, which are indications of commitments of governments, they have the aims of ensuring that the role expected by the agricultural sector in economic growth and development of the country is achieved. This has been particularly so given the relative available resources against the backdrop of the oil sector which has become a major source of revenue for the country. This means that the agricultural sector is not longer having the same commitments from governments compared to the past.

The Federal Government created some policies and programmes such as the Structural Adjustment Programme (SAP) launched in July 1986; to stabilize the administration in order to have a free market oriented economy that would enhance private investment and more efficient use of resources. The aims and objectives of the SAP were to improve on the production of exportable cash crops in order to diversify the export base of the economy; to provide the rural dwellers with more employment and increase their income; to increase domestic food production in order to suit the growing population of the country and to raise nutritional status and value to ensure a good living standard for the citizens. The Fiscal, Monetary and the Trade and foreign exchange rate policies were the SAP policy tools designed to improve the agricultural sector directly or indirectly.

Prior to the introduction of the SAP policy in 1986, the Federal Government of Nigeria has implemented several agricultural policies and programmes in order to stabilize and improve the agricultural sector. Although some of the programmes were neglected or under review, this may be as a result of their failure to reach their intended targets, some are still present and in existence. These include the Farm Settlement Scheme launched in 1959; National Accelerated Food Production Programme (NAFPP) launched in 1972; Agricultural Development Projects (ADPs) launched in 1972; Nigerian Agricultural cooperation and Rural Development Bank (NACRDB) launched in 1973; River Basin Development Authorities (RBDAs) established in 1976; Operation Feed the Nation (OFN) launched in 1976; the Agricultural Credit Guarantee Scheme Fund (ACGSF) established in 1977; Green Revolution Program inaugurated in 1980; and Directorate of Foods, Roads and Rural Infrastructures (DFFRI) established in 1985 (Olayiwola and Adeleye, 2005).

However, with all these policies framework and program, the performance of the Nigerian agricultural sector in terms of its overall contribution to economic growth and development is not encouraging. As a result of this, in 2004, the Nigerian Federal Government launched another economic reform, National Empowerment and Development Strategies (NEEDS). The program is aimed at improving growth as well as to reduce poverty through a participatory process involving the civil society and the development partners. To the agricultural sector, NEEDS is aimed at promoting and enhancing the production, distribution and processing of agricultural products. These products include crop products; livestock products; forestry products; fishery products; processing and the general marketing of these agricultural products (Mabuza, Taeb and Endo, 2008). With all these measures, growth and development of the agricultural sector in Nigeria has been sluggish and the role of the sector to economic growth and development has been less (Child, 2008).

Other measures aimed at improving agriculture were in terms of credit schemes to give more support to rural farmers with the hope of increasing food supply. These include Nigerian Agricultural Cooperative Bank established in 1973, as well as the establishment of Rural Banking programme in 1977. Based on these schemes, the Central Bank of Nigeria (CBN) provides different lending alternatives with lower interest rate for agricultural sector to be enjoyed by farmers. However, In 2004 Nigerian president together with some African countries’ leaders launched a program called New Partnership for Africa’s Development (NEPAD) whose primary aim is to reduce hunger and alleviate poverty. Agriculture is seen as the engine of economic growth and development to help African countries to overcome the issue of hunger and poverty reduction. The main strategy for achieving this is Comprehensive African Agriculture Development program (CAAP). The programme targeted at having better economic growth and development through increasing farm output. It also considered encouraging private and public sectors participation in agricultural production. According to Isedu (2008), Ondo State Government shows interest in attracting foreign investment in the area of agriculture by merging together with foreign firms in Thailand and Republic of China. The aim of this merger is to establish rice and cassava processing plants in the State. This will help the country because other state governments will also try to attract foreign investors into agriculture.

As stated earlier, there have also been conscious efforts by successive governments in Nigeria to improve the flow of credit to the agricultural sector. As such, the sector is considered one of the four priority areas for credit provisions, other sectors being solid minerals, exports and manufacturing. Hence, credit provisions to the agricultural sector as a percentage of overall credit to the productive sectors have generally increased from about 26% in 2007 to about 36% in 2011 (NCB, 2012).

2.5 Agriculture as a Source of Employment, food security, sectorial linkages and foreign exchange earner for Poverty Reduction

In terms of employment, agriculture constitutes the major source of employment in Nigeria. This is in line with the theory of economic growth and development that in order to facilitate the process of human resource development, there is the need for agricultural transformation which must exceed the process of economic transformation. In majority of developing countries, agriculture provides employment for about 70% of the total population. This important role of agriculture makes the sector to be almost the single provider of employment in developing countries (Longe, 2008). However, report show that one of the significant problems facing agricultural production in developing countries is shortage of high-level manpower. Evidently, less number of skilled management personnel in agricultural production is a problem. This has caused slow expansion of agricultural output as well as overall growth in the industrial sector in Nigeria (Longe, 2008). It further challenges the poverty reduction potential of agriculture.

Furthermore, agriculture serves as source of foreign exchange earnings for a country. Increasing the amount of export of agricultural products is an important source of increasing income as well as generating foreign exchange in developing countries (Uniamikogbo and Enoma, 2001). Improving and increasing the level of agricultural export is a good measure for generating more foreign exchange earnings in the non-oil sector in developing countries and also a better policy even when world food supply and demand conditions are not encouraging. According to Longe (2008) increasing agricultural production for export is associated with high risk of price decline hence having a negative effect on farmers. However, because of the nature of agricultural output, as total income increases the demand for agricultural products fall.

Agriculture creates market product for industrial sector. There is a debate on the role of agricultural sector’s contribution to the capital requirement for overall economic growth and development and its role in increasing farmer’s income and reducing poverty. The linkage between agricultural growth and development and economic growth and development with respect to industrial growth and development is important for the overall growth and development of an economy (Uniamikogbo and Enoma, 2001). Even with its rich endowment in oil and other mineral resources, the wellbeing of Nigerian economy still depends heavily on the agricultural sector. Literally, Nigeria is an agrarian economy in terms of its contribution to the overall national output and employment creation. Nigerian agricultural sector is the largest sector contributing to the total national GDP (Gross Domestic Product) accounting for about 38% in the last 8 years, with crops accounting for about 80%, forestry 3% and fishery 4%. Furthermore, it provides employment for about 65% to the labor force in the country as well as the required food and nutrients needed by the large and increasing population. Because of its linkages to various sectors in the economy, Nigerian agro-industrial companies significantly depend on the sector for its available raw materials provision whilst 88% of the non-oil exports earning for the country come from the agricultural sector.

In terms of food security, agriculture contributes immensely accounting for over 90% of total food consumption. These help the country in maintaining a healthy and peaceful population as well as food and nutrition for its citizens. Foreign exchange earnings from export of agricultural products in Nigeria has played an important role for achieving economic growth and development, thereby providing the necessary capital required for executing other capital development projects in the country. Statistics show that in 1960 export of agricultural products contributed well over 75% of total annual exports in the country. In the 1940’s and 50’s Nigeria was one of the World’s leading countries in major crops production and export. In terms of palm oil and palm kernel export for example, Nigeria was the largest, second to Ghana in cocoa and third in groundnut.

As stated earlier, the agricultural sector still remains the leading sector employing majority of the Nigerian population as it employs two- third of the total labor force in the country (Bola, 2007). Olatunji (2002) observed that in Nigeria today, farming still remains the source of employment for majority of the adult population in the country. The sector’s productivity is the most important single factor influencing as well as improving the standard of living of both the rural and urban citizens. About 90% of the rural population is involved in activities related to agriculture, which include farming; fishing; poultry management as well as forestry. These provide bulk of the income they earn. Similarly, because of the linkages provided by the agricultural sector, it supports the processing industries by providing them with the necessary raw materials they needed for carrying out their production. In the early 1950’s and 1960’s agriculture played a significant role in improving economic growth and development in Nigeria. It helps majority of Nigerians in providing them with employment.

2.6 Summary and Conclusion

The literature review revealed that agriculture has been playing a major role in the economic growth and development across the world and Nigeria in particular. It is a source of employment for a large population of people in Nigeria and across the developing world. It contributes to development through its GDP. Various governments in Nigeria since independence in 1960 have made efforts to improve the agricultural sector. What is lacking in the literature is that though the contribution of agriculture to the national GDP is said to be declining, there have not been empirical analyses of whether or not its growth rate is also declining. Besides, there has been limited research on the trends of expenditure of successive governments on the agricultural sector and how that affects its contribution to national development. It is concluded that there is the need for this research to address the gaps identified in the literature review.

CHAPTER THREE

METHODOLOGY

3.1 Introduction

This chapter outlines the methodology employed towards the attainment of the research objectives. The chapter is divided into three main subsections. First, the profile of the study area is presented. Second, the theoretical models and the empirical specifications of the relevant models for the attainment of the specific objectives are presented. The third section is a presentation of the data types and sources.

3.2 Profile of the Study Area

Nigeria is located in West Africa, bordered by Benin to the west, Niger to the north, Cameroon to the east and the Atlantic Ocean. The terrain varies from coastal swamps and tropical forest in the south, to savannah and semi-desert in the north. The highest points are the Jos Plateau in the Centre (1,200-2,000 meters above sea level) and the mountains along the eastern border. River Niger, the third longest river in Africa, reaches the sea through an extensive Delta of mangrove swamps. Nigeria has a total land area of 923,768 sq km (356,700 sq miles) and a population of 160 million (World Bank, 2012). Its capital city is Abuja and other major cities include Lagos, Ibadan, and Kano. Nigeria is a lower-middle income country. It is the World’s 8th largest producer of oil. Although there has been increasing focus on diversifying the economy, it is still highly dependent on the oil/gas sector and is sensitive to price fluctuations. Despite its oil wealth, Nigeria’s GDP per capita is low and unemployment is said to be approximately 24%.

Historically, Nigeria was a British colonial creation. It came into being in January 1914 with the amalgamation of the Colony of Lagos (first annexed in 1861), the Southern Protectorates (established 1885 – 1894) and the Northern Protectorate (pacified in 1903). Hitherto, the British had administered them as separate but related territories. Local involvement in government was introduced as early as 1922 when southern politicians, from Lagos and Calabar, took seats in the central legislative assembly. Their northern counterparts did not have legislative experience until 1947 when a new constitution introduced the principle of regional representation. The 1954 constitution created fully-fledged regional governments, and federal elections were held in 1959 the year before independence.

Nigeria was granted its independence on 1 October 1960, originally with Dominion status. In 1963, Nigeria broke its direct links with the British Crown, and became a Republic within the Commonwealth. The independence constitution provided for a federation of three autonomous regions – North, West and East – each with wide-ranging powers, its own constitution, public service, and marketing boards. The overarching but weaker federal government had powers limited to national issues, including control of the police and army, and economic planning. The political system was derived from the Westminster model. A fourth region – the Mid-West – was created in 1964 to satisfy the demand of the minorities.

Nigeria operates an Executive Presidential system of government. This American-style model was first introduced in 1979, during the last period of civilian rule, and retained on the return to civilian rule in 1999. It replaced the Westminster system that had been inherited at independence. The federal bi-cameral legislature comprises a Senate with 109 elected members and a 360-member House of Representatives. Each of the 36 States has an elected Governor and an elected State Assembly of between 24 to 40 seats depending on the size of the population. All elected offices have a four-year tenure. The third tier comprises 774 Local Government Areas. There is a two-term constitutional limit on the tenure of the President and the State Governors. Nigeria is a multi-party state and has nearly 50 political parties which are officially registered but only three, the ruling PDP, the ANPP and the AC, have electoral strength. The PDP is the largest party with a national spread, the ANPP heartland is in the north, while the AC is a new opposition alliance with support across the country.

3.3 The Theoretical and Empirical Models

This section provides the theoretical and empirical models used in achieving the study objectives. The section is divided into three main subsections. The first subsection is presentation of the theoretical and empirical models for the estimation of the trends of agricultural GDP growth in Nigeria. The second subsection presents the theoretical and empirical models for the estimation of the trends of government expenditure on Nigerian agricultural sector. The third subsection is a presentation of the theoretical and empirical models for the estimation of the contribution of agriculture to economic growth and development of Nigeria.

3.3.1 Trends of agricultural GDP Growth in Nigeria

The first objective of the study is to estimate the trends of agricultural GDP growth in Nigeria. The basic theoretical assumption is that agricultural GDP growth is a function of time. This is in line with the theoretical specification evidenced in similar studies such as that of Enoma (2001) and Isedu (2008). The growth rate of agricultural GDP was estimated using the growth model specified in (Mason et, al, 1999):

(1)

Equation (1) is transformed into equation (2) for the empirical estimation as:

(2)

Where Z = Agricultural GDP; X = Time measured in years from 1981 to 2010; α and β are parameters to be estimated; and ε1 is the stochastic term of the model. This model was estimated by Ordinary Least Squares (OLS) using SPSS (Version 16).

The following hypotheses were tested:

Null (Ho) Hypothesis: This means that the average annual agricultural GDP growth rate in Nigeria from 1981 to 2010 is not significantly different from zero.

Alternate (Ha) Hypothesis: This means that the average annual agricultural GDP growth rate in Nigeria from 1981 to 2010 is significantly different from zero.

The decision criterion:

We will fail to reject the null hypothesis that the average annual growth rate of agricultural GDP from 1981 to 2010 is not significantly different from zero if the t-calculated is less than the t-tabulated. On the other hand, we will fail to accept the null hypothesis that the average annual growth rate of agricultural GDP from 1981 to 2010 is not significantly different from zero in favor of the alternate hypothesis that it is significantly different from zero if the t-calculated is greater than the t-tabulated.

3.4.2 Trends of Government Expenditure on Nigerian Agricultural Sector

The second objective of the study was to estimate the trends of government expenditure on Nigerian agricultural sector. The basic theoretical assumption is that government spending on agriculture is a function of time. Similar to the first objective, the trends and growth rate of government spending on the agricultural sector of Nigeria was estimated using the growth model specified in (Mason et, al, 1999):

(3)

Equation (3) is transformed into equation (4) for the empirical estimation as:

(4)

Where E = Government expenditure on agriculture; X = Time measured in years from 1981 to 2010; and are parameters to be estimated; and ε2 is the stochastic term of the model. This model was estimated by Ordinary Least Squares (OLS) using SPSS (Version 16).

The following hypotheses were tested:

Null (Ho) Hypothesis: This means that the average annual growth rate of government spending on Nigerian agricultural sector from 1981 to 2010 is not significantly different from zero.

Alternate (Ha) Hypothesis: This means that the average annual growth rate of government spending on Nigerian agricultural sector from 1981 to 2010 is significantly different from zero.

The decision criterion:

We will fail to reject the null hypothesis that the average annual growth rate of government spending on Nigerian agricultural sector from 1981 to 2010 is not significantly different from zero if the t-calculated is less than the t-tabulated. On the other hand, we will fail to accept the null hypothesis that the average annual growth rate of government spending on Nigerian agricultural sector from 1981 to 2010 is not significantly different from zero in favor of the alternate hypothesis that it is significantly different from zero if the t-calculated is greater than the t-tabulated.

3.4.3 Contribution of Agriculture to economic growth and Development of Nigeria

The third objective of the study is to estimate the contribution of agriculture to economic growth and development. This was done using an augmented Cobb-Douglas production function. Agricultural GDP was used as a proxy for the contribution of agriculture to economic growth and development. The functional form of the model was specified as:

(5)

Where Y is the output of interest; A is a constant term; X1 and Xi represent a vector of inputs; is the stochastic component of the model and; π and φi are parameters to be estimated. To transform the model, the natural logarithm of the left and right hand variables of equation (5) was taken and this gave equation (6) as:

(6)

The empirical model is specified as:

(7)

Where Y is the real GDP measured in Nigerian Naira and is a proxy of the economic growth and development; A is a constant term; X1 is government spending on the agricultural sector and was measured in Nigerian Naira; X2 is credit allocation to the agricultural sector and was measured in Nigerian Naira; and X3 is the number of people employed in the Nigerian agricultural sector as a proxy of labour supply covering the periods 1981-2010. This model was estimated by Ordinary Least Squares (OLS) using SPSS (Version 16).

The following hypotheses for joint significance were tested:

Null (Ho) Hypothesis: This means that all coefficients of the variables included in the model are not significantly different from zero implying that they do not jointly influence the contribution of agriculture to economic growth and development.

Alternate (Ha) Hypothesis: This means that all coefficients of the variables included in the model are significantly different from zero implying that they jointly influence the contribution of agriculture to economic growth and development.

The decision criterion:

We will fail to reject the null hypothesis that all coefficients of the variables included in the model are not significantly different from zero implying that they do not jointly influence the contribution of agriculture to economic growth and development if the F-calculated is less than the F-tabulated. On the other hand, we will fail to accept the null hypothesis that all coefficients of the variables included in the model are not significantly different from zero implying that they do not jointly influence the contribution of agriculture to economic growth development in favor of the alternate hypothesis that they jointly influence the contribution of agriculture to economic growth and development if the F-calculated is greater than the F-tabulated.

The following hypotheses for individual significance were tested:

Null (Ho) Hypothesis: This means that government spending on the agricultural sector does not significantly influence the contribution of agriculture to economic growth and development.

Alternate (Ha) Hypothesis: This means that government spending on the agricultural sector significantly influences the contribution of agriculture to economic growth and development.

Null (Ho) Hypothesis: This means that credit allocation to the agricultural sector does not significantly influence the contribution of agriculture to economic growth and development.

Alternate (Ha) Hypothesis: This means that credit allocation to the agricultural sector significantly influences the contribution of agriculture to economic growth and development.

Null (Ho) Hypothesis: This means that labour supply to the agricultural sector does not significantly influence the contribution of agriculture to economic growth and development.

Alternate (Ha) Hypothesis: This means that labour supply to the agricultural sector significantly influences the contribution of agriculture to economic growth and development.

Null (Ho) Hypothesis: This means that there is no autocorrelation.

Alternate (Ha) Hypothesis: This means that there is autocorrelation.

The decision criteria:

We will fail to reject the null hypotheses if the t-calculated of the individual variables included in the model are less than the t-tabulated. On the other hand, we will fail to accept the null hypotheses if the t-calculated of the individual variables included in the model are greater than the t-tabulated. For the DW, we fail to accept the null hypothesis if the DW is greater than 2 and accept it if it is less than 2.

3.5 Data Types and Sources

Secondary data’s are the only data types used in this study. The data’s were obtained from two main sources. These sources are the Central Bank of Nigeria (CBN) and the National Bureau of Statistics (NBS). The data covered 1981 to 2010 on the following variables

Agricultural Gross Domestic Product

National Gross Domestic Product

Government expenditure on agriculture

Credit allocation to agriculture

Population involved in agriculture

CHAPTER FOUR

RESULTS AND DISCUSSION

4.1 Introduction

This chapter presents the results obtained from the study. Apart from the introduction, the chapter is divided into four main subsections. The first subsection presents a description of the data. The second subsection presents the trends of agricultural GDP growth in Nigeria from 1981 to 2010. The third subsection presents trends of government spending on the agricultural sector of Nigeria covering the same period. The fourth subsection presents the contribution of agricultural to economic growth and development.

4.2 Description of the Data

The study considered five key variables in examining the role of agriculture to economic growth and development of Nigeria. This includes agricultural gross domestic product (AGDP), overall national gross domestic product (GDP), credit extended to the agricultural sector of Nigeria, government spending on the agricultural sector and the population engaged in agricultural production. The data covered a period of thirty (30) years spanning from 1981 to 2010.

It was revealed that during the period, the minimum agricultural GDP was found to be about ₦60,000.00 and the maximum was found to be about ₦320,000.00. On the average, agricultural GDP was found to be about ₦140,000.00. A standard deviation of about ₦80,000.00 is an indication that there were wide variations in agricultural GDP during the period (Table 4.1). It was also found that during the periods (1981-2010), the minimum overall GDP of Nigeria was found to be about ₦180,000.00 and the maximum was found to be about ₦780,000.00. On the average, the overall GDP was found to be about ₦360,000.00. A standard deviation of about ₦180,000.00 is an indication that there were wide variations in overall GDP of Nigeria during the period (Table 4.1).

Table 4.1: Description of key variables

Statistic

Variables (1981 – 2010) in Millions Naira (₦)

Agric. GDP

Overall GDP

Agric. Credit

Expenditure

Minimum

0.06

0.18

0.02

12.77

Maximum

0.32

0.78

8.35

65.40

Mean

0.14

0.36

1.40

9.93

STDEV.

0.08

0.18

2.43

16.87

Source: Author’s computations based on data from CBN and NBS, 2012

In terms of credit to the agricultural sector, it was revealed that during the periods, the minimum amount allocated to the sector was about ₦20,000.00 and the maximum was about ₦8,350,000.00. On the average, the amount of credit extended to the agricultural sector of Nigeria during the periods was found to be about ₦1,400,000.00. A standard deviation of about ₦2,430,000.00 is an indication that there were wide variations in the amounts of credit extended to the agricultural sector of Nigeria during the periods (Table 4.1).

Regarding expenditure on the agricultural sector by successive Nigerian governments, it was found that from 1981 to 2010, the minimum amount spent by governments on the sector was about ₦12,770,000.00 and the maximum was found to be about ₦65,400,000.00. On the average, governments spent about ₦9,930,000.00. A standard deviation of about ₦16,870,000.00 is an indication that there were wide variations in the expenditure of successive governments on the agricultural sector of Nigeria during the periods (Table 4.1).

It was also revealed that during the periods (1981-2010), the minimum number of people employed in the agricultural sector of Nigeria was about 1,080,000 and the maximum was found to be about 54,030,000. On the average, the number of people employed in the agricultural sector of Nigeria was found to be about 23,190,000 during the periods. A standard deviation of about 16,510,000 shows wide variations in the number of people employed in the agricultural sector of Nigeria during the periods (Table 4.1).

4.3 Trends and Growth of Agricultural GDP in Nigeria

The first objective of the study is to examine the trends and growth of agricultural GDP in relation to the overall GDP of Nigeria. It was revealed that during the periods 1981 to 2010, both agricultural GDP and overall national GDP of Nigeria assumed upward trends (Figure 4.1). This means that the agricultural sector of Nigeria continues to play significant role in the economic growth and development of the country.

Source: Author’s computations based on data from CBN and NBS, 2012

In terms of growth, a growth model was estimated. The F-statistic of the regression results was found to be statistically significant at the 1% level. This means that time and the constant term which capture other variables not included in the estimation jointly influence the growth of Nigerian GDP. An adjusted R-squared of 0.926 implies that the included variables are able to explain about 93% in the variations in the gross domestic product of Nigeria. The regression analysis further showed that the overall gross domestic product of Nigeria grew at an average rate of about 5% annually between the periods 1981 to 2010 (Table 4.2). This growth rate was found to be statistically significant at the 1% level.

Table 4.2: Growth rate of overall GDP in Nigeria (1981-2010)

Dependent Variable: Log(Gross Domestic Product)

Independent Variables

Coefficient

Standard Error

t – Values

Constant

11.395

0.045

265.242

Time

0.048

0.003

19.126

Goodness of fit measures

F-Stat.

365.816

Prob.(F-Stat.)

0.000

R2

0.929

Adjusted R2

0.926

Durbin-Watson Stat.

0.187

Source: Author’s computations based on data from CBN and NBS, 2012

The model estimated to determine the growth rate of the contribution of agriculture to economic growth and development using its GDP as a proxy showed a statistically significant F-statistic at the 1% level (Table 4.3). This means that time and the constant term which contains other variables not included in the estimation jointly influence the growth of Nigerian agricultural GDP. An adjusted R-squared of 0.933 implies that the included variables were able to explain about 93% of the variations in the contribution of agriculture to economic growth and development through its gross domestic product. The regression analysis further showed that the agricultural gross domestic product of Nigeria