ABSTRACT
In most agrarian economies like
the type that exists in Nigeria,
agricultural production provides the needed fulcrum upon which a sustainable
development would blossom. Being the main source of food for most of the
population, till date, agricultural production remains the mainstay of the
Nigerian economy. It provides the means of livelihood for most of the
population, a major source of raw materials for the agro-allied industries and
a potent source of the much needed foreign exchange. However, inadequate credit (among other
factors) to the agricultural sector led to the downward trend observed in
agricultural productivity in Nigeria.
To avert such trend, the Federal Government of Nigeria established the
Agricultural Credit Guarantee Scheme Fund (ACGSF) in 1977 to assist farmers
have access to credit as to improve agricultural productivity. The setting up
of the ACGSF was predicated on the unwillingness of commercial banks to give
loans to smallholder farmers for reasons of high default rate on loan repayment
and, therefore high risk, of repayment. In the course of the fund’s operations,
a number of problems have been identified as militating against its smooth performance;
some of which affected the amount of credit granted to the various agricultural
subsectors. Therefore, this study sought to examine (i) the impact of
Agricultural Credit Guarantee Scheme Fund on crop output in Nigeria; (ii) the
impact of Agricultural Credit Guarantee Scheme Fund on livestock output in
Nigeria; (iii) the impact of Agricultural Credit Guarantee Scheme Fund on
fisheries output in Nigeria; and (iv) the impact of Agricultural Credit
Guarantee Scheme Fund total fund granted on Agricultural output and
productivity in Nigeria. The ex-post
facto research design was adopted to enable the researcher make use of
secondary data and determine cause-effect relationship during the period,
1978-2008. The Ordinary Least Square (OLS) estimation technique was adopted,
using SPSS statistical software to test the hypotheses, where Total
Agricultural Credit Guarantee Scheme Fund (TACGSF), Agricultural Credit
Guarantee Scheme Fund to crop production (ACGSFCP), Agricultural Credit
Guarantee Scheme Fund to livestock (ACGSFLSP) and Agricultural Credit Guarantee
Scheme Fund to fisheries (ACGSFP) were used as the independent variables while
Agricultural Production (AP), Gross Domestic Product Agricultural Crop
Production (GDPACP), Gross Domestic Product Agricultural Livestock Production
(GDPALS) and Gross Domestic Product Agricultural Fisheries Production (GDPAFP)
were used as the dependent variable. The study found that Agricultural Credit
guarantee scheme fund for crop production, livestock production and fisheries
had significant positive impact on crop, livestock and fisheries productivity
in Nigeria for the period of
the study and also, the total agricultural credit guarantee scheme fund had
significant positive impact on agricultural output in Nigeria. The
study therefore recommends that stakeholders in the scheme viz: the farmers,
lending institutions and government must show greater commitment and dedication
for the scheme to achieve its laudable objectives.
TABLE OF CONTENTS
Title Page – – – – – – – i
Approval Page – – – – – – – ii
Certification Page – – – – – – – iii
Dedication – – – – – – – iv
Acknowledgements – – – – – – v
Abstract – – – – – – – vii
Table of Contents – – – – – – x
List of Figures – – – – – – – xi
List of Appendices – – – – – – – xii
CHAPTER ONE INTRODUCTION
1.1 Background of the Study – – – – – 1
1.2 Statement of the Problem – – – – – 5
1.3 Objectives of the Study – – – – 6
1.4 Research Questions – – – – – – 7
1.5 Research Hypotheses – – – – – – 7
1.6 Scope of the Study – – – – – – 8
1.7 Significance of the Study – – – – – 8
1.8 Definition of Terms – – – – – – 8
References – – – – – 10
CHAPTER TWO
REVIEW OF RELATED LITERATURE
2.1 Agricultural Financing Policies in Nigeria – – 13
2.2 Challenges of agricultural financial policies – – 15
2.3 Agricultural Production in Nigeria – – – 17
2.4 The Agricultural Sector and Nigeria’s Development – – 19
2.5 The Agricultural Credit
Guarantee Scheme: Roles, Problems and Prospects – 21
2.6 Structure, Organization and Mandate of the ACGSF – 24
2.7 Overview of the agricultural finance policies in Nigeria- 25
2.7.1 Agricultural Finance Policies Schemes – – – – 25
2.7.2 Agricultural Finance Policies Programmes – – – 27
2.7.3 Agricultural Finance Policies Institutions – – – 30
2.8.1 Nigerian Agricultural
Cooperative and Rural Development Bank (NACRDB) – 31
2.8.2 Agricultural Credit Support Scheme (ACSS) – – 33
2.8.3 Micro Credit Fund (MCF) – – – 33
2.8.4 Rural Finance Institution Building Programme (RUFIN) —34
2.8.5 Nigerian Agricultural Insurance Scheme (NAIS) – 35
2.9 Credit Guarantee Schemes in Developing Countries – – 35
2.10 Agricultural Budget in Nigeria – – – 38
2.11 Agricultural Finance through Bank Lending 44
2.12 Agricultural Credit Guarantee Scheme Fund on Cash Crops – 45
2.14 Issues on Banking Lending for Agricultural
produce – – – 51
2.13 Agricultural Credit Rationing by Commercial Banks in Nigeria 47
2.15 Lending risks and agricultural loans – – – 53
2.16 Credit Risk Management in Bank Lending to Agriculture – 54
2.17 Potentials for diversifying
Nigeria’s non-oil exports to non-traditional
markets – 55
2.18 Causes of Credit Risks in Agricultural Financing – – 57
2.19 Sources of Risks of Agricultural Firms – – – 58
References – – – – 59
CHAPTER THREE RESEARCH
METHODOLOGY
3.1 Research Design – – – – – 67
3.2 Nature and Sources of Data – – – – – 67
3.3 Model Specification – – – – – 67
3.4 Model Justification – – – – – 67
3.5 Techniques of Analysis 69
References 71
CHAPTER FOUR PRESENTATION
AND ANALYSIS OF DATA
4.1 Presentation of Data – – – – – 72
4.2 Test of Hypotheses – – – – 75
4.2.1 Test of Hypothesis One – – – – – 75
4.2.2 Test of Hypothesis Two – – – – – 76
4.2.3 Test of Hypothesis Three – – – – – 77
4.2.4 Test of Hypothesis Four – – – – – 78
4.3 Comparison of the Findings with the Objectives of the Study 79
References – – 81
CHAPTER FIVE SUMMARY OF FINDINGS, CONCUSION AND
RECOMMENDATIONS
5.0 Introduction – – – – – 82
5.1 Summary of Findings – – – – – 82
5.2 Conclusion – – – – – 82
5.3 Recommendations – – – – – 84
References – – – – – 86
Bibliography – – – – 8 Appendices – – – – – 99
LIST OF TABLES
Table 4.1 Agricultural Outputs in Nigeria 1978-2008 at Basic Prices 72
Table 4.2 Agricultural Credit Guarantee Scheme Fund 1978-2008 74
Table 4.3 SPSS Model Summary for Hypothesis One 76
Table 4.4 SPSS Model Summary for Hypothesis Two – 77
Table 4.5 SPSS Model Summary for Hypothesis Three 77
Table 4.6 SPSS Model Summary for Hypothesis Four 78
LIST OF FIGURES
Figure 4.1 Agricultural Outputs in Nigeria 1978-2008 at Basic Prices – – 73
Figure 4.2 Agricultural Credit Guarantee Scheme Fund from
1978-2008 – – 75
LIST OF APPENDICES
Appendix 1 Agricultural Output in Nigeria 1978-2008 at Basic Prices 89
Appendix 2 Agricultural Credit Guarantee Scheme Fund 1978-2008 90
Appendix 3 SPSS Model Results for Hypothesis One – 91
Appendix 4 SPSS Model Results for Hypothesis Two – 93
Appendix 5 SPSS Model Results for Hypothesis Three – – 95
Appendix 6 SPSS Model Results for Hypothesis Four – 97
CHAPTER ONE
INTRODUCTION
1.1 Background
of the Study
Agricultural Production in Nigeria is progressively on the decline
in terms of its contribution to the Gross Domestic Product (GDP) as well as satisfying
the country’s food requirement, despite the fact that about 70 per cent of the
population engage in agriculture, thus Nigeria agricultural sector is unable to
fulfill its most basic and traditional role of being the source of food for the
nation, therefore the food import has continued to rise (Odigbo, 2000). There
is a growing recognition by the Nigerian farmers of the effect of improved
inputs and new technologies on agricultural yield. The use of these inputs and
the adoption of high yielding techniques have given rise to an increased need
for agricultural credit since majority of Nigerian farmers are small-scale
farmers and are often limited by unfavorable economic, social, cultural and
institutional conditions (Olubiyo and Hill, 2000). Insufficiency of capital has
been a major constraint to agricultural development (Agu, 1998) in order to
improve agricultural production modern farm inputs such as fertilizers,
improved seed, feeds and plant protection chemicals and agricultural
machineries are needed over the hoe and machete technology. Most of these
technologies have to be purchased, yet very few farmers have the financial
resources to finance such purchases(Adeniji and Joshua, 2008).
Agriculture contributes immensely to the Nigerian economy in
various ways, namely, in the provision of food for the increasing population;
supply of adequate raw materials (and labour input) to a growing industrial
sector; a major source of employment; generation of foreign exchange earnings;
and, provision of a market for the products of the industrial sector
(Okumadewa, 1997; World Bank, 1998; Winters et al., 1998; FAO, 2006).
The agrarian sector has a strong rural base; hence, concern for agriculture and
rural development become synonymous, with a common root (Eze et. al., 2010).
Eze et. al. (2010) posit that support for agriculture is widely
driven by the public sector, which has established institutional support in
form of agricultural research, extension, commodity marketing, input supply,
and land use legislation, to fast-track development of agriculture. These are
aside the Private sector participation is not limited to local or foreign
direct and portfolio investment financing, but also to sponsorship of research
and breakthrough on agricultural issues in universities, capacity building for
farmers and, most importantly, the provision of financing to farm businesses.
International governmental and non-governmental agencies including the World
Bank, Food and Agricultural Organization of the United Nations, etc., also
contribute through on-farm and off-farm support in form of finance, input
supply, strengthening of technical capacity of other support institutions, etc
(see, Eze et. al., 2010).
At independence in 1960, Nigeria’s agriculture was
characterized by high production achieved by mobilizing small scale farmers,
provision of infrastructure (roads, railways) geared towards developing crops
required for export, and foundation laid for research and export. After
independence, government interventions in agriculture were realized within the
framework of development plans and annual budgets. Food was abundant and demand
met without resort to import (Okoro and Ujah, 2009).
Using a broad classification, the Central Bank of Nigeria (CBN)
and National Bureau of Statistics (NBS) document the import and export
agricultural products in the following categories – live animals and animal
products; vegetable products; animal and vegetable fats and oil; foodstuff,
beverages, spirit and vinegar, tobacco; and raw hides and skins leather,
furskins, and saddler. The agricultural exports of significance include cocoa
beans and products, rubber, fish/shrimp, cotton, processed skin, etc (Okoro and
Ujah, 2009). These agricultural products account for about 39.7% of the total
non‐oil exports in 2007 (CBN, 2007). According to Soludo (2006),
agriculture has been growing at about 7% per annum in the last three years and
has been driving the non‐oil growth, and will
continue to hold the key to growth, employment and poverty reduction.
In terms of value of import vis‐à‐vis export, Nigeria
is a huge net‐importer of agricultural
products. The import‐export gap has been widening
since 1999 and this puts the agricultural policy of the nation to question.
This situation, however, provides a unique opportunity for closing up or
eliminating this ‘agricultural deficit’ through functional policies and budgets
(Okoro and Ujah, 2009).
Agriculture also is a significant sector in the Nigerian economy.
Although Nigeria depends
heavily on the oil industry for her revenues, Nigeria is predominantly an
agrarian society with the sector contributing about 42%1 of real GDP in 2008
(CBN, 2008). In 2007, the contribution of agriculture to economy totaled some
$132.2 billion (Economist, Sept. 2008). Eboh, Ujah and Nzeh (2009) show that
the contemporary economic significance of the agricultural sector is even more
remarkable as in the past half a decade, the impressive growth rate of the
nation’s economy has been driven by the non‐oil sector,
particularly agricultural sector. There
are, however, doubts about the sustainability of the current growth rate. The
recent upsurge in agricultural growth rate could have been driven mainly by
production of staple crops, while productivity has remained low and internationally
uncompetitive, and yields of most crops have actually declined over the past
two decades (Mogues et al., 2008; Eboh et al., 2006).
Approximately 70% of the Nigeria’s population engages in
agricultural production at subsistence level, while agricultural holdings are
generally small and scattered (FGN, 2008). Smallholder farmers constitute 81%
of all farm holdings and their production system is inefficient. Small‐scale (0.1‐5.9 ha), medium scale (6.0‐9.9 ha) and large scale (>10 ha) are the three broad categories
of farm holdings in Nigeria, with the small‐scale farm
holdings predominating the country’s agriculture and accounting for about 81%
of the total farm area and 95% agricultural output (see, Shaib et al.,
1997; FMAWR, 2009). The estimated average operational holding is 2 ha per farm
family.
Further analysis of the working population data indicates that
growth rate of agriculture working population seems to be the driver of the
growth rate in total working population. For instance the growth rate of
agriculture working population dropped from 3.73% in 2003 to 1.94% in 2007,
while that of the total working population dropped from 4.46% in 2003 to 3.25%
in 2007 (see, Ujah
and Okoro, 2009). The high correlation between growth rates of total
working population and agriculture working population seems to suggest that
agriculture holds the potential for tackling unemployment in the country at
least in the short‐run. Despite the
significance of agriculture in the nation’s economy, the sector is clearly the
least productive when compared to other sectors (Ujah and Okoro, 2009).
The Agricultural Credit Guarantee Scheme Fund (ACGSF) was formed
under the military government in 1977 with an initial capital base of N100
million distributed between the federal government (60% equity) and the Central
Bank of Nigeria
–CBN (40%). The ACGSF is exclusively managed by a board set up under the
supervision of the CBN (management agent). The fund is set up with the sole
purpose of providing guarantee in respect of loans granted by any bank for
agricultural purposes (Central Bank of Nigeria, 1990). Nwosu et al (2010) noted
that the ACGSF was formed solely with the objective of encouraging financial
institutions to lend funds to those engaged in agricultural production as well
as agro-processing activities with the aim of enhancing export capacity of the
nation as well as for local consumption. This is solely exclusive for large
scale farming (Somayina, 1981).
The question that comes to mind is whether the declining share of agricultural
loan from commercial banks can be traceable to the challenges that encumbered
ACGSF. For example, Nwosu et al (2010) identified three major problems
associated with the ACGSF scheme, which include increasing incidence of loan
defaulters, bank related problems and the inclusion of the term “personal
guarantee”. Nwosu et al reiterates that the term is subjective in
interpretation especially as the decree forming ACGSF was not able to explain
this. Therefore, banks utilize personal judgment and circumstantial framework
to interpret this. This will hinder the achievement of the objective of the
scheme (see, Nwosu, 2010).
One of the sole objectives for the establishment of the ACGSF is
to enhance the export capacity of agricultural produce (Somayina, 1981). The
ACGSF is aimed at guaranteeing agricultural outfit that specializes in the
following; agricultural outfit engaged in the establishment and management of
plantation for cash crop produce like rubber production, oil palm extracting,
cocoa plantation etc; agricultural outfit engaged in the cultivation and
production of food crops like fruit of all kinds, tubers of yam, cereals and
all other food crops and agricultural activities involved in the large scale
production of animal husbandries. The vast
employment opportunity and the quest towards diversification of the revenue
source by the federal government and development agencies have shifted
attention towards the informal and the agricultural sector. For example, to
sustain the agricultural production in Nigeria,
the World Bank developed a project called Agricultural Development Projects
(ADPs) which was designed to enhance the production of agricultural outputs in Nigeria.
There are four sub‐sectors of agriculture in Nigeria. These are arable crops (including food crops), livestock, fishery and forestry (including tree crops). Most of the researches conducted in this area have dealt on the overall impact of the Agricultural Credit Guarantee Scheme fund on non-oil export output (Somayina, 1981; Efobi, 2011 etc) and contribution to Nigeria’S GDP (Nwosu, et al., 2010; Shaib, et al., 1997).
THE IMPACT OF AGRICULTURAL CREDIT ON AGRICULTURAL PRODUCTIVITY IN NIGERIA
