THE IMPACT OF AGRICULTURE ON ECONOMIC GROWTH IN NIGERIA

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THE IMPACT OF AGRICULTURE ON ECONOMIC GROWTH IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The study of economic history provides us with ample evidence that an agricultural revolution is a fundamental pre-condition for economic development (Eicher & Witt, 1964; Oluwasami 1966; Jones & Woolf, 1909). The agricultural sector has the potential to be the industrial and economic springboard from which a country’s development can take off. Indeed, more often than not, agricultural activities are usually concentrated in the less developed rural areas where there is a critical need for rural transformation, redistribution, poverty alleviation and socio-economic development (Stewart, 2000). Nigeria’s economic aspirations have remained that of altering the structure of production and consumption patterns, diversifying the economic base and reducing dependence on oil, with the aim of putting the economy on a path of sustenance, all inclusive and non-inflationary growth. Despite Nigeria’s vast agricultural resources both human and natural, we are still faced with acute food crisis, the intensification of poverty and massive suffering of the overwhelming majority of Nigerians. This situation is however typical of all third world countries operating within the neo colonial capitalist system (Akor, 2009).

Nigeria is generously endowed with abundant natural resources including biological and non -biological resources. Resources depend on importance attached to it, hence agriculture constitutes one of the most important sectors of the Nigerian economy. The significance of the agricultural resource in bringing about economic growth and sustainable development of a nation cannot be under-estimated. Agriculture contributes to the growth of the economy, provides employment opportunities for the teeming population, export revenue earnings and eradicates poverty in the economy.

Abayomi (1997) stated that stagnation in agriculture is the principal explanation for poor economic performance, while rising agricultural productivity has been the most important concomitant of a successful industrialization. The pervasive influence of agriculture on Nigeria’s economic and social development has also been articulated by Oluwasanmi (1996) “A strong and efficient agricultural sector could enable a country to feed its growing population, generate employment, earn foreign exchange and provide raw materials for industries”. The agricultural sector has a multiplier effect on any nation’s socio- economic and industrial fabric because of the multifunctional nature of agriculture (Ogen, 2007).

Agriculture has been defined as the production of food and livestock and the purposeful tendering of plants and animals, (Ahmed, 1995). He stated further that agriculture is the mainstay of many economies and it is fundamental to the socio- economic development of a nation because it is a major element and factor in national development. In the same vein, Okolo (2004) described the agricultural sector as the most important sector of the Nigerian economy which holds a lot of potentials for the future economic development of the nation as it had done in the past. Notwithstanding the enviable position of the oil sector in the Nigerian economy over the past three decades, the agricultural sector is arguably the most important sector of the economy.

Generally the agricultural sector contributes to the development of an economy in four major ways ;product contribution, factor contribution, market contribution and foreign exchange contribution (Abayomi, 1997; Abdullahi 2002 & World Bank 2007). The objective of this study is therefore to examine the agricultural sector as the key to the diversification of the Nigerian economy for sustainable development.

The definition of agriculture changes over time. Agriculture is the cultivation of plants and husbandry of animals. That is, the management of living things and eco systems to produce goods and services for the people. Agriculture includes farming, ranching, aquaculture, apiculture, horticulture, viticulture, animal husbandry, including but not limited to the care and raising of livestock, poultry husbandry and the production of poultry and poultry products, diary production, the production of field crops, tobacco, fruits, vegetables, nursery stock, ornamental shrubs, ornamental trees, flowers, sod or mushrooms, timber, pasturage, any combination of the foregoing, the processing, drying, storage and marketing of agricultural products. When these activities are conducted in conjunction with, but are secondary to such husbandry or production.

The sustainability of agriculture in Nigeria cannot be isolated from the sustainability of economic development. A number of other related definitions are also in common usage. The American Society of Agronomy, for example, defines sustainable agriculture as one that, over the long term, enhances environmental quality and the resource base on which agriculture depends, provides for basic human food and fiber needs, is economically viable, and enhances the quality of life of farmers and society as a whole (Uptal, 2001).

Another definition by Macrae (1990) posits that Sustainable agriculture is both a philosophy and a system of farming. It is rooted in a set of values that reflects an awareness of both ecological and social realities and a commitment to respond appropriately to that awareness. It emphasizes design and management procedures that work with natural processes to conserve all resources and minimize waste and environmental damage, while maintaining and improving farm profitability.

Agricultural development, a subset of economic development, implies a sustained increase in the level of production and productivity over a reasonable length of time and the subsequent improved wellbeing of farmers as reflected in their higher per capita income and standard of living. Rural development relates not only to a sustained increase in the level of production and productivity of all rural dwellers, including farmers, and a sustained improvement in their wellbeing, manifested by increasing per capita income and standard of living, but also leads to a sustained physical, social and economic improvement of rural communities.

The colonial government recognized the potential of the agricultural sector to improve the Nigerian economy and therefore put in place policies aimed at increasing output and to extract surpluses in the sector. The main focus of development in this period was the surplus extraction philosophy or policy whereby immense products were generated from the rural areas to satisfy the demand for raw materials in metropolitan Britain (Ayoola, 2001). This early interest of the extractive policy was on forest resources and agricultural exports like cocoa, coffee, rubber, groundnuts, oil palm, and cotton. The capitalist agricultural policies of Nigeria since 1900 have remained basically intact. No efforts have been made to fundamentally change them. The nature of these agricultural policies and their impacts led to Nigeria’s agricultural disorientation and the food crisis (Akor, 2009).

Meanwhile, most of these policies were made without proper institutional arrangement, programs, specific projects, strategies, goals or targets and specific objectives geared towards the realization of these dreams of the policies. This can be proved by the fact that there was only one documented agriculture scheme that evolved towards the end of the era (early 1960s) called the farm settlement scheme (Iwuchukwu & Igbokwe, 2012). The imperialistic theoretical framework of the notions of development and modernization have decisively influenced the Nigerian agricultural policies since the colonial era. The rate and direction of Nigeria’s agricultural development were therefore, determined by the British colonialist and taken over by the neo-colonial Nigerian ruling classes since 1960 (Akor, 2009).

The Nigeria’s agricultural development was fully de-centralized with the regions and states carrying out all activities while support was provided by the federal government and this enabled a state/region specific approach. This approach involved the combined efforts of small scale farmers/the private sector and the government. This approach was very successful during the period and thus with agriculture remaining the mainstay of the Nigerian economy; providing employment, raw materials for industries, the main source of foreign exchange earnings and also sustaining the food security status of the populace. The appropriation and utilization of Nigeria’s economic surplus by the colonial and neo colonial imperialist powers is central to the analysis of the structural distortions in the agricultural sector and Nigeria’s food crisis. The central point in the imperialist relationship was the transfer of economic surplus to strengthen the capitalist class and the capitalist mode of production in Europe and North America (Akor, 2009).

However, with the onset of the 1970’s, there was a national neglect of this sector due to oil boom which practically led to a decline in the sector (Abimiku, 2009). Despite the drastic decline, no matter how much development and structural transformation will be achieved in Nigeria, agriculture will continue to retain its relative dominance in the economy for many decades to come. More importantly, it is from agriculture and in particular from agricultural exports that the country received its principal stimulus for economic growth in 1950s and 1960s. It will remain a key factor in Nigeria’s economic development as the largest employer of labour (about 72% of the labour force in 1970-1971), the principal source of food and raw materials for the population and industries and a significant though relatively declining earner of foreign exchange. The acceleration of agricultural growth is therefore crucial for the country’s future progress (Akor, 2009).

In the 1970’s, the policy instrument that was introduced by government included a series of development plans at the national level. The Structural Adjustment Program (SAP) in 1986 came up after this and efforts were made at making the agricultural sector commercially competitive and remunerative and also tried to redress Nigeria’s defective mono-economic imbalance by diverse diversifying programs in order to reduce dependence on the oil sector and also on imports. This policy package focused on a rapid improvement of domestic food production, the domestic supply of agricultural raw materials, the production of exportable cash crops and also rural employment. The client status of Nigeria in the international capitalist system is the fundamental structural basis for imposing the abuses of underdevelopment on the country (Akor, 2009).

The programs only succeeded in creating and raising the awareness to diversify the economy through agriculture and the catalytic and leading role the private sector must play in agricultural development which renewed a general interest in agriculture. Despite its huge potentials, the country is a net importer of food. The nation’s food import basket is made up of items which can be produced locally in sufficient amount. In addition, the economy is characterized by price volatility and high prices due to over dependence on rain-fed agricultural output. Some of the problems faced by agricultural sector include; Under-investment, low productivity, inadequate input, poor and rudimentary storage culture, unfavourable exchange rate policy among others. In addition, (Adesina, 2011), posited that only 1% of total lending in banking sector goes to agriculture despite the fact that the sector accounts for about 70% of employment opportunities and 44% of the Nation’s GDP. The promotion of capitalist agricultural development in Nigeria led to heavy reliance on imported agricultural inputs from the core capitalist countries from 1970 to 1979, while the imported agricultural inputs increased, there were no visible increase in both food and cash crop production .The rise in the importation of agricultural inputs went hand in hand with the rise in food imports, food shortages and negative output of cash crops. The poor performance records of the agriculture in the face of massive imported agricultural inputs imply that the strategy must be faulty and the solutions anticipated misconceived (Akor, 2009).

According to (Sanusi, 2011), Nigeria is incurring a total food import bill of $4.2billion about N638.4billion annually due to the neglect of agriculture and partly due to insatiable appetite of Nigerians for foods not locally produced. For instance, Nigeria is the only country in the world that does not produce wheat and yet consumes 100% wheat bread. According to Okojie & Mike (2006), the relationship between export performance and economic growth has been a subject of considerable interests to development economists especially those who believe that economic growth should be sustained and maintained. Chenery & Strout, (1994) asserted that for a long time, there was hardly any country which exhibited sustained economic growth rate higher than its growth of exports. They also claimed that growth rates of individual developing countries correlate better with their export performance than with any other single economic indicator.

Nigerian government at different times have formulated and implemented several agricultural policies aimed at addressing the myriads of problems confronting the sector and ensuring food availability and foreign exchange earnings for the country. However, for a policy to have a meaningful impact, it must have strategies (that is, programs or projects) geared towards the accomplishment of specific objectives and the ultimate goal of the policy. To this extent, various policy programs and projects have been initiated in Nigeria. Some of these policy programs recorded substantial success while some were huge failures. Similarly, Offiong, (1980) opined that the general obstacles that has frustrated the African match towards economic freedom remained imperialism and dependency. Another impact of imperialism is seen through the process of making and unmaking leaders .As illustrated by Onimode, (1988) “there is no gain saying that most coups carried out in the African continent were planned by the colonial imperialist powers to achieve their purpose of dominance”.

1.2 STATEMENT OF THE PROBLEM

Nigeria is yet to attain the ranks of a developed country due to lack of structural changes among other factors. Also, it was observed that a factor crucial to this lack of economic progress is the lack of economic diversity which caused the economy to rely heavily on crude oil for revenues and as a major export commodity in the economy (Osuntogun, 1997). Prior to the 1970’s, Nigeria’s exports were predominantly non-oil commodities with agricultural commodities accounting for a lion share. However, in the 1970’s when the price of crude oil in the international market skyrocketed, the share of agricultural exports began to fall and have remained low ever since. This is majorly due to the money spinning nature of oil export which makes it more profitable to export oil and less profitable to export non-oil commodities.

This has caused a rather heavy dependence on the oil sector and the proceeds from exportation of crude oil. This heavy reliance subjects the country to difficulties when the price of crude oil, the major exports commodity is low in the international market (as it is case presently). In light of this, the government adopted various strategies to boost agricultural exports and stabilize the economy. In spite of these efforts, the performance and contributions of the agricultural sector has remained low. The sector has continued to perform below its full potentials. This research is therefore carried out to address the following issues/questions.

1. What are the factors responsible for low agricultural output in Nigeria?

2. Why the less emphasis on agricultural sector and much dependence on petroleum sector?

3. What measures should be taken by government to enhance the performance of the agricultural sector towards diversifying the economy for sustainable development?

4. Has petroleum impacted positively or otherwise on the agricultural sector and the development of the Nigerian economy?

1.3 OBJECTIVES OF THE STUDY

In spite of Nigeria’s rich agricultural endowment, there has been a gradual decline in agricultural contribution to the nation’s economy. Low agricultural output has a negative effect on the Nigerian economy as a whole. This research work is aimed at examining the agricultural sector as the key to the diversification of the Nigerian economy for a sustainable development. Other aims include:

1. To see how Agriculture can be used for the diversification of the Nigerian economy in order to achieve sustainable development.

2. To identify the constraints hampering Agriculture as a tool for the diversification of the Nigerian economy for sustainable development.

3. To suggest ways of removing these constraints.

4. To suggest other measures necessary for improving agriculture as a tool for the diversification of the Nigerian economy for sustainable development.

1.4 METHODOLOGY OF THE STUDY

This research is geared towards understanding the role of agriculture in the diversification of the Nigerian economy for sustainable development. This study will employ the use of quantitative statistical tools and econometric method of analysis. An econometric multiple regression model will be adopted to determine the impact of agriculture on Nigeria’s economic growth. With the appropriate model, the following tests will be conducted to test the statistical reliability and the significance of the estimated parameters: the standard error test, t-statistics and f-test.

For the purpose of data analysis, a multiple regression model will be used to show the relationship between the dependent variable (GDP) as a proxy for economic growth and the explanatory variables, the revenue from agricultural output, unemployment rate and inflation rate. The hypotheses to be tested in this study are:

HO: There is no significant impact of agricultural output on Nigeria’s economic growth.

H1: There is a significant impact of agricultural output on Nigeria’s economic growth.

The hypotheses are to be tested at 5% level of significance.

This can be represented mathematically as:

GDP = f (X1, X2, X3,)

This can be further expressed in an econometric model as:

GDP = β0 + β1X1 + β2X2 + β3X3+µ

Where:

GDP = Gross Domestic Product

X1 = Agricultural Output

X2 = Unemployment rate

X3= Inflation rate

β0 = Constant term

β1 = Parameter estimate of agricultural output

β2= Parameter estimate of unemployment rate

β3=Parameter estimate of inflation rate

µ = Error term or stochastic variable

The a priori expectation is that an increase in the independent variable (agricultural output) will have an increase in the dependent variable (GDP) while a decrease in the independent variable (unemployment rate) will have an increase in GDP and an increase in inflation rate will have an increase on the GDP. Hence, positive β1, negative β2, and positive β3.

This research work has six chapters, with chapter one covering the general introduction, which includes introduction, background of the study, statement of the problem, objectives of the study, methodology of the study, sources of data, scope and limitations of the study.

Chapter two contains literature review which gives the Classical’s, Neo-Classical’s, Keynesian’s, Neo-Keynesian’s, and Marxian views about using agriculture for economic diversification.

Chapter three examined the Nigerian oil dominated economy and the need for diversification. This contains the declining dominance of the petroleum sector in the Nigerian economy, Alternative sources for the diversification of the Nigerian economy for sustainable development and agriculture as the main vehicle for the diversification of the Nigerian economy.

Chapter four focuses on the agricultural sector as the key to the diversification of the Nigerian economy for sustainable development; agriculture as the main tool for increased revenue generation in Nigeria, agriculture as the main tool for solving Nigeria’s unemployment problem, agriculture as the main tool for curbing inflation in Nigeria, agriculture as the main source of raw materials for industries in Nigeria, agriculture as the main tool for reducing poverty, hunger and malnutrition in Nigeria and agriculture as the main tool for remedying Nigeria’s balance of payment problems.

Chapter five deals with data presentation and analysis, model specification, model estimation, test of statistical significance, interpretation of results and discussion of findings.

Chapter six summarizes the research work. Conclusion and recommendations are also contained in this chapter.

1.5 SOURCES OF DATA

Data used in this research work are mainly secondary data obtained from textbooks, journals, newspapers, government publications and unpublished sources such as research projects of B.sc and M.sc students which served as an important guide to this research work. Also, the internet provided important and useful information that served as a source for this work.

1.6 SCOPE OF THE STUDY

This research work focused on the diversification of the Nigerian economy through the agricultural sector for sustainable development. This study covers a period 24 years (1900-2013).The study will basically focus on the agricultural sector in relation to economic diversification and sustainable development, employment generation, foreign exchange earnings, as well as the petroleum sector and its contributions to the economic development of Nigeria.

1.7 LIMITATIONS OF THE STUDY

The limitations encountered in this study include time, administrative bureaucracy in government institutions where information were sourced, limited and insufficient information. Also, there was the problem of inadequate finance as well as poor power supply in the country.

Apart from the above mentioned constraints which are capable of adversely affecting the result of this research work, all the other errors and omissions are entirely those of the researcher.

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