CHAPTER ONE
INTRODUCTION
1.1 Background of the Study.
Agricultural financing is a financial service ranging from short, medium and long- term loans, towards production and livestock insurance which covers the entire agricultural chain. Agriculture which can be defined as the activity of man for the production of food, clothing and the optimum use of terrestrial resource.
Agriculture been stated as the back bone of Nigerian economy and the most important human economic activity. However, agriculture is originated from a Latin word ‘Ager’ means “field”, soil and ‘Cultura’ means “cultivation” which deals with the science, art or practising the cultivation of the soil, production of crops and raising live stocks and management of its products.
The importance of agriculture in increasing the food supply for Nigeria’s teeming populations, providing adequate raw materials for agro–based industries, employment, capital and foreign exchange for economic development calls for banks and public sector’s partnership in agricultural financing for increased output.
Nigeria’s quest for food security and self sufficiency will remain unrealisable if the country’s agriculture continues to rely on peasant farmers for agricultural financing. This is why successive Governments and banks in Nigeria have adopted various policies, programmes and actions to increase the flow of financial resources to the agricultural sector, in order to increase that sector’s output for self sufficiency. Self sufficiency in food production has engaged the attention of successive governments in Nigeria since the independence in 1960. This is because no country can claim to be either economically or politically sovereign if it cannot feed its people. However, judging by the growth rate of the agricultural products, the sector cannot be said to have performed optimally.
To achieve the objective of this research, the appropriate agricultural finance policy and strategy must be adopted by the country and measures to intensify the role of financial institutions in accelerating the development of Nigeria’s agricultural needs to be given urgent attention especially in this era of global food crisis. Towards this end, the paper in section two discusses the literature review. Section three and four contain the methodology, results and discussion of findings while Section five is the conclusion and recommendations. In order for Nigeria to successfully diversity its economy and avoid the consequence of depending just on petrol, new innovation should be introduced to boost the agricultural sector as following steps;
Agricultural output in Nigeria can be influenced amongst other factors by Government policy framework in such areas as Central Bank of Nigeria, Bank Credits Guild Lines and Budgets Allocations; and it’s financing remains the mainstay of the economy since it is largest sector in term of its share in employment.
As the watchdog of the economy; Nigeria is placing much emphasis on financing other sectors most especially agricultural sector since agriculture has the potentials to stimulate economic growth through provision of raw material, food, jobs and increased financial stability (Obansa and Maduekwe 2012).
It follows that financing agriculture is one of the most important instrument of economic policy for Nigerian, In her efforts to stimulate development in all directions, finance is required by agricultural sector to purchase land, construct building, acquire machinery and equipment, hire labor, irrigation etc. In certain cases, such loans are needed to purchase new appropriator technologies. Adegeye and Dittohs (1985) gets it insights as the economic study of acquisition and use of capital in agriculture to help in its output in Nigeria.
In recent years, Nigeria has been a land with agriculture, yet the sector still accounts for a significant proportion of her gross domestic products. Agriculture is the leading sector in accounting about 63 and 54 percent to GDP especially in the 50s and 60s respectively (Aigbokhah, 2001). The sectors share in gross domestic product though fell in the post oil boom period, maintained yet persistent increase. For instance, between 1970 and 1980 the share of agriculture in real gross domestic product (RGDP)in Nigeria arranged 29.2%, it was 33.3% between 2001 and 2009;
World (2007) opines that in Nigeria Agriculture is estimated to be largest contributor to non-oil foreign exchange earnings. This means that it holds the abundant potential enhancing and sustaining the country’s foreign exchange. (Food and Agricultural Organization (2006) observed that agriculture contributes immensely to the Nigeria economy in various ways: provision of food for the increasing population, supply of adequate raw material sector, a major source of employment, generation of foreign exchange earnings and provision of a market for the productivity supports. The possible way forward among others, include the provision of finance. Farmers need access to cheap finance and not to be forced to borrow at sky-high interest rate from local money lenders: it can achieve by salting up moral bank – Specializing in the provision of finance to small farmers. Various measures have been adopted in insurance of these objectives in recent years. These include conveyance of credit to agricultural sectors at its interest rate, establishment of agricultural financial institutions and introducing finding schemes.
Also in the recent time in country, following the Central Bank of Nigeria C.B.N (2010) animal growth rate of agriculture dropped from 55.2% in 2002 to 7.4% in 2006, which however, this research will focus on using variable like commercial bank loan to agriculture and loan guarantee to agricultural finance have impacted of agricultural output in Nigeria and its welfare.
1.2 Statement of the Problems
It is obvious that no aspect of the economy will do well without proper financial intermediation from the financial system of the agricultural output. However, the problems that give rise to this study are lack of loan to agricultural sector by commercial bank in Nigeria etc. There is high interest rate on agricultural Loan in Nigeria and the problem of low performance of the agricultural credit guarantee scheme fund which has lefty aims especially the need to make agricultural sector lucrative but it has not lift up his bidding, this calls to empirical assessment with a view to understanding the resultant effects from the huge investment from the government into this sectors. The vast employment opportunity and the quest towards diversification of the revenue sources by the federal government and development agencies have shifted attention towards the informal and agricultural sectors. For instance, example to sustain this agricultural production in Nigeria, the World Bank developed a project allied agricultural development project (ADPS) which was designed to enhance the production of agricultural productivity in Nigeria.
1.3 Research Questions
1. What is the impact of agricultural credit guarantee scheme funds on agricultural output in Nigeria?
2. What is the impact of government expenditure on agricultural output in Nigeria?
3. What is impact of commercial bank credit to agricultural output in Nigeria?
1.4 Research Objectives
The major objectives of this work are to determine the impact of agricultural financing on agricultural output in Nigeria.
1. To evaluate the impact of agricultural credit guarantee scheme funds on agricultural output in Nigeria
2. To ascertain the impact of government expenditure on agricultural output in Nigeria.
3. To determine the impact of commercial bank credit to agricultural output in Nigeria.
1.5 Research Hypothesis
The following hypotheses were formulated after the order of the research objectives to include:
H0. Agricultural credit guarantee scheme funds have no significant effect Agricultural output in Nigeria.
1. Government expenditures have no significant effect on agricultural output Nigeria.
2. Commercial bank credit has no significant effect on the agricultural output in Nigeria.
1.6 Significant of the Study
This study is significant in the sense that it will reveal how agricultural financing can contribute to the growth of agricultural products. if proper attention is given to agricultural output through the financing system it will guide policy makers such as government and private sectors in making polices that will help the agricultural endeavors. This study will be useful to the student of economics, banking and Farmer etc. As it will aid in them for research.
1.7 Scopes of the study
This study is aimed at accessing the impact of agricultural financing to agricultural output in Nigeria, ranking from 1980 to 2015, which captures the extent to which agricultural have improved on agricultural output; through stimulating economic growth. Through our findings it stated that agricultural output will always fluctuate and is not constant, which will always increase at a certain year and also decrease at a certain year.
IMPACT OF AGRICULTURAL FINANCING ON THE AGRICULTURAL OUTPUT IN NIGERIA
