IMPACT OF AGRICULTURAL PRODUCTION ON RURAL WELFARE IN NIGERIA

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IMPACT OF AGRICULTURAL PRODUCTION ON RURAL WELFARE IN NIGERIA

ABSTRACT

Increase in agricultural production is essential for agricultural development since it enhances profitability and income which leads to welfare improvements. In Nigeria agricultural production and rural welfare have worsened over the years. Adequate information on the link between agricultural production and rural welfare in Nigeria is expected to better inform policy makers on implementation. Agricultural production and its impact on rural welfare in Nigeria were, therefore, investigated.

Secondary data covering the military period (1970-1979 and 1984–1999) and democratic

(1980–1983 and 1999-2007) periods were used for the study. The pre-Millennium Development Goals – MDGs (1970– 1999) and MDGs (2000–2007) periods also fall within the study period (1970 – 2007). The government regimes (military and democratic) as well as the pre-MDGs and MDGs periods captured the various policies implemented. Data were obtained from the National Bureau of Statistics (NBS), Central Bank of Nigeria and the Food and Agriculture Organization. Data were extracted on agricultural inputs and production, Agricultural Gross Domestic Product (AGDP), foreign private investments in agriculture, agricultural budgets as well as infrastructural and industrial development indices. These were analysed against extant policy regime at the periods of data collection. Rural welfare was proxied by real AGDP per capita. Data were analysed using descriptive statistics, stochastic frontier function and generalized method of moments at p = 0.05.

Irrigated area as a percentage of arable land was highest in the MDGs period (0.90±0.03) and lowest during the pre-MDGs period (0.74±0.04). Use of tractors per ha of arable land was highest during the MDGs (9.74±0.64) and lowest at pre-MDGs era (5.78±3.08). Rate of fertilizer use was highest (15.51±3.47) during the democratic period and lowest during military rule (13.34±3.46) kg ha-1. Aggregate index of agricultural production peaked during the MDGs period (165.5814.85). Production indices for crop, livestock, and forestry were highest during the MDGs period (176.58±22.53, 225.91±36.54, and 129.42±11.89) but that of fishery peaked during the democratic period (158.62±29.79). The AGDP as a percentage of national GDP was highest during the MDGs period (41.76%) and lowest during the pre-MDGs period (38.72%). Agricultural budget as a percentage of total national budgets was highest during the military period (3.67±2.77) and lowest during the democratic period (3.21±2.87). Improvement on road was highest during the military era (63.00±26.51) while industrial development peaked during the democratic period (53.83±11.47). Percentage of foreign private investments in agriculture peaked during the pre-MDGs (1.77±1.03). A unit change in area under irrigation led to increase in agricultural productivity by 2.11%. Agricultural productivity index was highest during the MDGs period (0.87±0.09) and lowest during preMDGs era (0.84±0.11). Real AGDP per capita was also highest during the MDGs era (N2872.19±491.75) and ebbed during military era (N1950.75±398.76). Agricultural productivity and agricultural budgets significantly improved rural welfare by 0.28% and 0.29%. Also, industrial development and road infrastructure indices significantly improved

significantly improved rural welfare by 0.65%.

Keywords: Agricultural production, Rural welfare, Millennium development goals.

TABLE OF CONTENTS

Page No.

Title page ……………………………………………………………….……..………….i

Abstract……………………………………………………………………………………………………………………… ii

Dedication…………………………………………………………………………………………………………………. iv

Acknowledgements……………………………………………………………………………………………………… v

Certification……………………………………………………………………………………………………………… vii

Table of Contents……………………………………………………………………………………………………… viii

List of Tables……………………………………………………………………………………………………………… x

List of Figures……………………………………………………………………………………………………………. xi

CHAPTER ONE: INTRODUCTION

1.0 Introduction ………………………………………………………………………….1

1.1 Background to the Study ……………………………………………………….……1

1.1.1 Nigeria’s Agricultural and Rural Development Policy …………………………….3

1.2 Problems Statement ………………………………………………………………….5

1.3 Justification for the Study ……………………………………………………………8

1.4 Objectives of the Study …………………………………………………….………..13

1.5 Limitation of the Study ………………………………………………………………13

CHAPTER TWO: THEORETICAL FRAMEWORK AND LITERATURE REVIEW

2.0 Introduction …………………………………………………………………………14

2.1 Theoretical Underpinnings and Framework …………………………………………14

2.2 Conceptual Framework ………………………………………………….……….….17

2.3 Literature Review ……………………………………………………….…….……..19

2.3.1 Agricultural Performance and Agricultural Production .……………….………….19

2.3.2Agricultural Income and Rural Welfare ………………………………….………..22

2.3.3 Impact of Agricultural Production on Rural Welfare …………….……….………..23

2.3.4 Review of Methodologies ………………………………………………………….26

2.3.4.1 Agricultural Production and Technical Efficiency ……………………………….26

2.3.4.2 Impact of Economic Growth and Rural Welfare …………………………….……27 CHAPTER THREE: METHODOLOGY

3.0 Introduction …………………………………………………………………………..29

3.1 Coverage of the Study ………………………………………………………………..29

3.2 Type and Sources of Data …………………………………………………………….32

3.3 Analytical Methods and Framework .…………………………………………….……32

3.3.1 Descriptive Statistics and Ratios ..………..…………………………………………33

3.3.2 Econometric analyses …………………………………………………….…………33

3.3.2.1Stochastic production frontier function ……………………………………….…..33

3.3.2.2 Generalized method of moments ………………………………………………….35

3.4 Variable Used for the Estimation of the GMM ………………………………………38

CHAPTER FOUR: RESULTS AND DISCUSSION

4.0 Introduction ……………………………………………………………………………42

4.1 Growth Rates in Agricultural Inputs ………………..…………………………………42

4.2 Indices of Agricultural Production ………….…………………………………………47

4.3 GDP Growth Rates and Contributions from Agriculture ………………………………49

4.4 Exports, Imports and Food Self-insufficiency …………………………………….……51

4.5 Agricultural Credit …………………………………………………………………..…54

4.6 Government Expenditure on Agriculture and Foreign Private Investments in Agriculture

………………………………………………………………………………………….…..56

4.7 Government Regimes and Agricultural Policy Actors …………………………………59

4.8 Agricultural Production Technical Efficiency ..……….…….…………………………63

4.9 Rural Welfare Levels ………………………….….…………………………………….66

4.10 Descriptive Statistics of Variables Used for the GMM Estimation ……………………68

4.11 Stationarity Tests ……………………………………………………………………..74

4.12 Impact of Agricultural Production on Rural Welfare in Nigeria …….………….…….77

4.12.1 Stochastic Production Frontier Estimates .………………………………………….77

4.12.2 Impact of Agricultural Production on Rural Welfare ………………………………81

CHAPTER FIVE: CONCLUSION

5.0 Introduction ……………………………………………………………………….….84

5.1 Summary of Major Findings ………………………………………………………….84

5.2 Implications of Major Findings …………………………………………………….…86

5.3 Recommendations ………………………………………………….………………….89

5.4 Contributions to Knowledge ……………………….………………………………….90

5.5 Suggestions for Further Studies ……………………………………………………..…91

References .…………………………………………………………………………………92

Appendices ……………………………………………………………………….…………109

CHAPTER ONE INTRODUCTION

1.0 INTRODUCTION

This section introduces the study. It gives the study background, enumerates Nigeria‟s agricultural and rural development policy, the problem statement, justistifies the study, presents the objectives of the study and highlights the limitations of the study.

1.1 BACKGROUND TO THE STUDY

Agricultural production is essential for generating broad-based growth necessary for development. Agricultural production is also fundamental to the sustenance of life and is the bedrock of rural economic development, especially in the provision of adequate and nutritious food so vital for human development and industries. Agriculture accounts for 88 percent of the non-oil foreign exchange earnings and employs about 60 to 70 percent of the active labour force in the country, and it is an important contributor to the Gross

Domestic Product (GDP), (FGN, 2001a; Akinyosoye, 2005). Also, according to the World Development Report 2008, the Nigerian economy is agriculture-based since agriculture constitutes more than 32 percent of GDP growth on average and that most of its people are in the rural area.

Similarly, increase in agricultural production promotes agricultural rural incomes which in turn enhance rural welfare (agricultural income per capita) in developing economies (World Bank, 2008). According to Datta and Meerman (1980), the distribution of income derives from the fundamental interest in the distribution of human welfare. Additionally, agriculture is also a major source of growth and development of most developing economies (Mogues et al., 2008; World Bank, 2008).

Past studies (Aigbokhan, 2000; World Bank, 2008) have suggested that increasing agricultural production could lead to improvement in agricultural incomes and hence, improvement in rural welfare. However, studies (Manyong et al., 2005; NBS, 2007) revealed that there is low level of agricultural production in Nigeria. Government policies at improving the level of agricultural production are also not well focused or distorted (Idachaba, 2006; Olomola et al., 2008; Ayanwale, 2011). The neglect of agricultural and rural development in Nigeria has led to a pitiably poor level of total annual food and fibre production in Nigeria (World Bank, 1990, Ikpi 1995); such that whereas Nigeria‟s population has been expanding steadily at an average annual rate of about 3 percent, total food production in the country has been rising by no more than 1.5 percent per annum on the average for the same period. The situation puts the nation in a “Malthusian Paradox”. That is, growth rate of human population increasing more than that food production. This situation has implications for food self-sufficiency in Nigeria. The food self-sufficiency ratio of the country dropped from 98 percent in the early 1960s to less than 60 percent in the early 1980s and less than 54 percent by 1986. This means that the average Nigerian as at 1986 had over 45 percent less home-grown food (Ikpi, 1995). The food self-sufficiency in Nigeria is currently at 80 percent (Shii, 2008). Despite that, recent data show that food imports has gradually become an important component of total imports (CBN, 2005; Lucas, 2007). Also, food insecurity and food prices (inflation) have risen drastically in recent times resulting in general increases in the prices of goods and services with its attendant welfare implications. These situations reflect the low level of agricultural production and poor rural welfare in Nigeria.

In Nigeria, various regimes (military and democratic) have made efforts to effect positive changes in agricultural production levels (see appendix 8 for synthesis of major agricultural policies, projects and programmes aimed at boosting agricultural production in Nigeria). These efforts are with the view to improving agricultural incomes and rural welfare. Yet there exists yield gap in most of the staple and industrial crops (Idachaba, 2000). Nigeria crashed from being the leading producer and exporter of groundnuts with the famous pyramids of the 1950s and 1960s to become a net importer of vegetable oil. The sudden reversal of fortunes has been attributed to agricultural underdevelopment and low performance in agriculture (Idachaba, 2006). Further, Ikpi (1995) and Idachaba (2000) have shown that undesirable/unworkable agricultural policies were at the centre of decline in agricultural production in Nigeria which consequently contributed to the vicious cycle of low levels of income and rural welfare in Nigeria. This, therefore, underscores the need for assessing the impact of agricultural production on rural welfare (proxied by per capita real agricultural GDP) in Nigeria with a view to gaining insights and empirical evidences to support the promotion of agricultural and rural development transformation in Nigeria.

1.1.1 NIGERIA’S AGRICULTURAL AND RURAL DEVELOPMENT POLICY

It is on record that Nigeria did not have an explicit statement of National Agricultural Policy for most of its history as a nation (Manyong, 2005). At independence in 1960, national planning and policies were formulated to achieve national objectives of economic growth and development (Akinyosoye, 2005). The first Agricultural policy document was in 1988. The publication of that document in 1988 was a welcome relief beyond the “Agriculture Chapter” of the first four National Development Plans (19621968, 1970-1974, 1975-1980 and 1981-1985). Nigeria has recently reviewed the 1988 Agricultural Policy document and has come up with the new Agricultural Policy document (FGN, 2001a).

Between 1960 and 1987, Nigeria used unarticulated administrative and political pronouncements to guide the operation of its agricultural activities. It was not until 1988 that it finally dawned on the federal government that there was the need to have a formal and well-articulated policy framework for a systematic and guided development of the agricultural sector in the country (Ikpi, 1995). Based on input from a broad spectrum of agricultural administrators, researchers, and academicians, the Agricultural Policy document was produced by the Federal Ministry of Agriculture, Water Resources and Rural Development in 1988 and was decreed by the federal government to be operational for at least fifteen years. Following a similar approach, the new Agricultural Policy document was formulated in 2001 (FGN, 2001a).

The amalgamated policy document (FGN, 2001a) covers issues on i) agricultural resources (land, labour, capital, seeds, fertilizer, etc.), ii) crops, livestock, fisheries, and agro-forestry production, iii) pest control iv) mechanization, v) water resources and irrigation, vi) rural infrastructure, vii) agricultural extension and technology transfer, viii) research and development, ix) insurance, xii) agricultural cooperatives, xiii) training and manpower, and xiv) agricultural statistics and information management.

Furthermore, Nigeria‟s agricultural policy framework has gone through a number of evolutionary processes and fundamental changes that reflect, in a historical perspective, the changing character of agricultural development concepts and the roles which different sectors of the economy were expected to play in tackling economic development problems. According to Olayemi (1995), three distinct agricultural phases can be identified in Nigeria. The first phase spanned the entire colonial period and the first postindependence decade from 1960 to about 1969; the second covered the period from about 1970 to about 1984; and the third phase started from about 1985; while Manyong et.al. (2005) built on the continuum of the periods and maintained that the fourth phase of agricultural policy in Nigeria was what could be characterized as the post-structural adjustment period starting from about 1994.

It should be noted, however, that some fundamental changes have occurred since 1954, when the adoption of the Federal Constitution created the federal government and three regional governments in the North, West and East. The post-independence republic Constitution retained the main features of the 1954 Federal Constitution. The 1979 Federal Constitution also retained essentially the same features with a total of nineteen states and Abuja as the federal capital territory. In both the 1954 and the 1963

Constitutions, agriculture appeared on the „residual‟ list of functions that were also claimed as a state responsibility, rather than on the legislative lists of either „exclusive‟ or

„concurrent‟ federal responsibilities (Idachaba, 2006).

From the foregoing, it is clear that agricultural and rural development policy documents are not in want in Nigeria as various government regimes and different policy scenarios have revealed (Idachaba, 2000, and 2006; Akinyosoye, 2005; FGN 2001a and 2001b). Both the exclusive (ministry-based) and concurrent (national-based) agricultural policy targets are not known to go by implemention targets. This has resulted in inherent deviations in implementation and inconsistencies (Garba, 1999 and Adebayo et al., 2009; Ayanwale, 2011). Perhaps, agricultural and rural development policies‟ lack of followthrough is the bane of Nigeria‟s agriculture and rural development (ECA, 2010).

1.2 PROBLEMS STATEMENT

Agricultural production is known to have led to rural economic transformation in some developing countries (World Bank, 2008). However, the case of Nigeria has not been well documented as there is limited literature on the impact of agricultural production on rural welfare in Nigeria. Despite the dominant role of the petroleum sector as a major foreign exchange earner, agriculture remains the mainstay of the economy. The Nigerian economy is agriculture-based (World Bank, 2008). Agriculture is both an economic actvitity and a source of livelihood of the rural sector in Nigeria. Apart from being the largest non-oil export earner, the largest employer of labour, and the key contributor to wealth creation, the agricultural sector is the base from which a large percentage of the population derives its income (CBN/NISER, 1992; NBS, 2007; Falusi, 2007). The agricultural sector is also the most important source of economic growth in Nigeria (Diao et al., 2009). However, over the years, the rate of growth in agricultural production has been unstable due to underdevelopment (Diao et al., 2009).

The elements of agricultural and rural underdevelopment include the standard of the Nigerian agriculture which remains primitive, subsistent and unproductive, and therefore, unable to produce sufficient food in the quantity, quality and variety for the increasing population of taste-discriminating consumers in spite of the country‟s enviable biodiversity and agricultural resource endowment (Ikpi, 1995). Also, where there has been some improvements in agricultural technologies, gains in production achieved from such improved agricultural technologies have not been fully exploited by farmers in developing countries, including Nigeria (Pingali and Heisey, 1999; Kalirajan and Shand, 2001; Alene and Manyong, 2006). Production growth in the agricultural sector is considered essential if the agricultural sector is to grow and develop at a sufficiently rapid rate to meet the demands for food and raw materials because of steady population growth (Coelli and Rao, 2003). Agricultural production is known to enhance profitability and income which leads to welfare improvements (Fulginiti and Perrin, 1998; World Bank, 2008). But the impact of agricultural production in enhancing rural welfare improvements has not been fully researched for Nigeria. Hence, the knowledge gap is being filled by this study.

The factors that influence agricultural production have not been revealed in literature. Manyong et al. (2005) identified 13 constraints to agricultural development in Nigeria; which include: labour, land tenure, environment, institutions, microeconomic policy, macroeconomic policy, health, socio-culture, politics, finance, economics, infrastructure, and technology. There is also a wide gap between potential and actual results in agricultural production in Nigeria has been attributed to lack of progressive pursuit of the nation‟s agricultural plan and policies (Idachaba, 2000). This study empirically established the factors that influence agricultural production and went on further to establish the impact of agricultural production on rural welfare in Nigeria.

Yet, we know that the Nigerian agricultural and rural development policy recognizes agriculture as the engine of economic growth (FGN, 2001a&b), but the agricultural and rural sector remains underdeveloped. The policy emphasizes, public spending for rural development, technology generation and transfer; infrastructural development including rural roads, power, communication, and water; and human capital investment (FGN, 2001b). Yet, public spending for agricultural and rural development have been low as evident by budgetary allocation to agriculture with no relationship to the sector‟s contribution to national GDP. Accelerated and profound technical change in production has also been identified as a missing link in agricultural and rural development in Nigeria. Also, the rural sector policy strategies report (FGN, 2001b) identified the deficiency of human capital in terms of education and health in rural areas.

The problem of rural infrastructure decay is a clog in the wheel of agricultural development in Nigeria. There has been neglect and inconsistency on rural infrastructural development in Nigeria. Also, the linkage among rural infrastructure, agricultural production and rural welfare has not been fully explored for Nigeria (Hazell et al., 1983; Mellor 1999). Rather, past policies and programmes like the establishment of the Directorate of Food, Roads and Rural Infrastructures (DFRRI) in 1986 which was responsible for the provision of rural infrastructures were started and later jettisioned (Idachaba, 2000).

1.3 JUSTIFICATION FOR THE STUDY

The current sub-optimal position of Nigeria as manifested in declining agricultural production, low level of rural welfare, food self-insufficiency, a mono-product without economic diversification have generated immense interest on the need for some comprehensive, objective, empirical assessment and evaluation of the impact of agricultural production on rural welfare in Nigeria.

According to Akinyosoye (2005), an important indicator of the failure of performance/underdevelopment of agriculture in Nigeria is in its inability to increase farm production technology in order to escape from the trap of agricultural underdevelopment when compared with the performances in many developed and developing countries. A comparative picture of the agricultural situation in Nigeria with what prevails in some selected developing and developed countries are presented in Table 1. The table shows that Nigeria is greatly endowed with agricultural resources and if seriously harnessed would engender the much desired food self-sufficiency, food security and enhance sustainable agricultural and rural development. Nigeria has the highest percentage of agricultural land but lowest percentage irrigated land, mechanization and agricultural contribution to export. All these need to be reversed through appropriate interventions. Interestingly, Nigeria also has the largest percent of labour force engaged in agriculture; this has implications for rural employment, wealth creation and production.

TABLE 1: COMPARISON OF KEY PARAMETERS OF AGRICULTURAL ENDOWMENTS AND PERFORMANCE IN SELECTED COUNTRIES

Parameter USA Denmark Argentina Brazil Thailand Malaysia Indonesia Nigeria

% Arable land 18 52.6 10.1 6.93 27.6 5.46 11 33

Moreover, the recent World Bank‟s (2008), World Development Report 2008 – the first in 25 years that was devoted to agriculture – revealed that in countries where agricultural production have increased (e.g., South Asia), agricultural incomes and poverty (welfare indicator) had equally reduced. However, the same cannot be said for sub-Saharan Africa, and indeed Nigeria as agricultural production and cereal yields are comparably low (despite the availability of farm technology) and poverty levels remain increasingly high especially in the rural areas (NBS, 2007). Also, the expansive agricultural land (80% of arable land) confers huge potential for increased agricultural production in Nigeria. Therefore, there is need to assess agricultural production and its impact on rural welfare in Nigeria with a view to moving the country from the present sub-optimal position of low production and low levels of rural welfare improvements.

It is important to note that investments are needed in rural feeder roads, electricity, water, agricultural infrastructure, health care, and education, in order to ensure sustainable agricultural and rural development. Despite the fact that policy development organizations like International Food Policy Research Institute (IFPRI) and the African Union (AU) had recommended 10 percent investment of national budgets in agriculture, the level of agricultural investment in Nigeria is currently less than 5 percent (IFPRI, 2008). This low level of investments in agriculture is not commensurate with the fact that the agricultural sector accounts for more than 40 percent of the GDP, and that the agricultural sector is important for economic growth and poverty reduction and wealth creation.

Despite the significant contribution of agriculture to the overall GDP, the rural sector of Nigeria still grapples with increasing level of income poverty as indicated by growing incidence of poverty in Nigeria. Figure 1 reveals that the rural sector is more poverty striken that the urban sector. In all the years, rural poverty incidence exceeded national averages. Therefore, effort to reduce rural poverty in Nigeria will contribute significantly to poverty reduction at the national level. The situation in the rural sector is sub-optimal (Akinyosoye, 2005), and succinctly justifies the present study on the the need to assess the impact of agricultural production on rural welfare in Nigeria.

Given the sub-optimal position of agriculture and rural sector in Nigeria, on the one hand, and the potentials of agriculture for economic growth and welfare improvements, on the other hand, this study offers comprehensive evaluation (using the sustainable livelihood framework) of the impact of agricultural production on rural welfare in Nigeria; since, it is known that strategies that lead to higher levels of agricultural production are needed for economic environment to increase agricultural profitability for sustainable rural livelihoods (Nkamleu et al., 2007), which have implications for rural welfare in Nigeria.

This study is further justified in terms of methodology: measurement of variables and method of analysis. Most agricultural performance and impact assessment studies in Nigeria are not known to have given explicit consideration to the impact of agricultural production on rural welfare. Therefore, this study provides adequate information on the link between agricultural production and rural welfare in Nigeria by employing robust theoretical and conceptual methodologies coupled with econometric analyses.

The study is in tandem with government‟s agricultural and rural development policies, strategies and programmes like the National Economic Empowerment and Development Strategy (NEEDS) and the Vision 20: 2020. These policies are designed to support the country‟s development goals spelt out under the Millennium Development Goals (MDGs). The study delivered on many grounds: it is a feedback on government‟s agricultural policies, investments in agriculture, agricultural production and rural welfare improvements. It filled the knowledge gap on the nation‟s progress towards the achievements of the MDGs, New Partnership for Africa‟s Development (NEPAD,

National Economic Empowerment Development Strategy (NEEDS I & II), and “Vision 20:2020” agenda; all of which emphasize increased agricultural production, wealth creation, import substitution, agricultural exports, food self-sufficiency, poverty reduction, land reforms, healthcare, functional education, improved rural infrastructural as well as sustainable agricultural and rural development (FGN, 2001a&b; IMF, 2007; and Marcellus, 2009).

Empirical evidence of the impact of agricultural production on rural welfare can inform policy makers in the agricultural sector towards the attainment of the United Nation‟s

Millennium Development Goals. Finally, the performance of Nigeria‟s agriculture has to a large extent been attributed to low incentives and incomes (Walkenhorst, 2007). Hence, getting agricultural production incentives right is of utmost importance not only boosting production but also for fostering economic growth and rural development. Whereas there have been studies on agricultural production in Nigeria, studies on the extent to which agricultural production impacts on rural welfare in Nigeria is limited in the literature.

Overall, this study assessed the impact of agricultural production on rural welfare in the context of sustainable agricultural and rural development, to the extent that it proffered answers to the following research questions:

what is the performance of agriculture in Nigeria from 1970 to 2007?

what is the level of agricultural production technical efficiency in Nigeria? (v) what impact does agricultural production have on rural welfare in Nigeria?

1.4 OBJECTIVES OF THE STUDY

The general objective of this study is to assess the impact of agricultural production on rural welfare in Nigeria. The specific objectives are to:

assess the performance of agriculture in Nigeria from 1970 to 2007;

estimate agricultural production technical efficiency in Nigeria; and

assess the impact of agricultural production on rural welfare in Nigeria.

1.5 LIMITATIONS OF THE STUDY

All the stated objectives of the study were successfully achieved. However, more comprehensive analyses on the performance of agriculture and impact of agricultural production on rural welfare at the regional/zonal, state and local government levels in Nigeria would ensure policy implementation at those levels of analyses, were there longitudinal data on selected variables for the period of the study.

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