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CHAPTER ONE

INTRODUCTION

1.1       BACKGROUND TO THE STUDY

As confirmed by Ugochukwu (1999), agriculture is the first and most thriven occupation of mankind. From its early form of wild fruits, leaf, root, snail and insect gathering, fishing and hunting, to its present mechanized and almost automated form, it has undergone a lot of development. Okah (2007) conceived agriculture as the cultivation of land, raising animals for the purpose of production of food for man, feed for animals, and raw materials for our industries. It also consists of croup production, forestry, livestock and fishing. It is also essential for expansion of employment opportunity, reduction of poverty and improvement of income distribution, speeding up industrialization and easing the pressure of balance of payments disequilibrium.

The role of agriculture in transforming both the social and economic frame work of an economy cannot be over emphasized. Anyanwu (1997) posits that “agriculture has been the main source of gainful employment from which Nigeria nation can feed its feeding population, providing the nations industries with local raw materials and as a reliable source of government revenue. Corroborating the above is Reynolds (1975) who asserts that agricultural development can promote the economic development by increasing the supply of food available for domestic consumption and releasing the labour needed for industrial employment.

The major agricultural export commodities in Nigeria include cocoa, coffee, cotton, groundnut, groundnut oil, palm kernel, soya beans, ginger rubber, benign –seed and chili pepper (CBN, 2003).there are other commodities that are being demanded in the world market such as cassava and cassava products, banana, plantain and so on. The Nigerian economy until today is still dependent on primary products both as foreign exchange earner and contribute to gross domestic product (GAP). Olurosunsola (1996) attributes this to the fact that the main interest of the colonial masters was and still is the exportation of products needed for their home industries.

The continuous production and exports of the agricultural product played a dominant role in attracting foreign exchange to boost economic activities from independence to the early 1970s. Obadan (2000:68), observes that the production and palm oil accounted for 96.4% of total exports earnings while non- oil export product accounted for 97.3% for total export then. He observed further that from the 1970s, the Nigerian economy became mono-cultural, having been transformed from one dependent on fairly diversified portfolio of agricultural products to an economy heavily dependent on crude oil for growth and sustenance. Oyo (1994:23) observed that the advent of crude petroleum production and related activities especially in the early 1970’s changed radically the structure of Nigeria economy. The huge foreign exchange earnings from crude oil export encouraged importation of finished foods to the detriment of domestic manufactured ones, while the agricultural sector was rendered less competitive over time through over-valued currency, inappropriate pricing policies and scarcity of farm labour caused mainly by the migration of youth to urban areas in search of wage employment.

Nigeria agriculture is divided into two types, the subsistence agriculture and commercial agriculture-: the subsistence agriculture is the type of farming which involves only the farmer and his family i.e the farmer produces for himself and his family with little or none to sell in the market it is practiced in small scale system. It involves only a little amount of money to practice unlike commercial farming that involves huge amount of money to practice. It does not involve the machine to carry out, since the land is very small and fragmented (Amechi 2004).

The second type is commercial agriculture, and this is where a farmer produces his crops and sells them in the market. It is carried out in large scale with enough land and machines. These machines are used in cultivating crops. It involves a lot of capital and time, and also increase the farmers income. Commercial farming helps farmers to engage in the cultivation of different varieties of crops, since the money, land and equipment could easily be used.

In agriculture, fund is needed to enable the farmer purchase more land, buy his inputs at the appropriate time and to pay for hired labour or farm machinery. Unfortunately, credits are not easily available for most of the farmers because of collateral and other things that are usually required by the commercial banks and other credit institutions. This makes it possible for most of the farmers in Nigeria to lack the required capital for investment in large scale agriculture, hence the reason for the recent low agricultural productivity. 

With the recent move by the leading economies of the world to diversify their economy Nigeria in a bid to join the rest of the developed economies is conscious of the danger signals observed both within and outside the country that underscores the need to move away from total reliance on petroleum related revenues. These signals according to soludo (2009:28) include the on-going global economic crisis that is threatening the growth and development agenda of the present administration, the crisis in the Niger delta which has interrupted petroleum operations in the past few years and the frightening revelation that the united states of America, the highest buyer of Nigeria crude oil, Brazil and several other countries are seriously engaged in research for an alternative source of energy. Hence, the need to diversify Nigerian economy, especially Agricultural sector that has for long, been neglected.

1.2       STATEMENT OF THE PROBLEM

Several researches have shown that Nigeria Is endowed with Huge expanse of fertile Agriculture land rivers, streams, lakes, forest and grassland, as well as a large active population that can sustain a high productive and profitable agricultural sector. Adubi (2000) admits that this enormous resource baser if well managed could support a vibrant agricultural sector capable of ensuring self- sufficiency in food and raw materials for the industrial sector as well as, providing gainful employment for the teeming population and generating foreign exchange through exports.

In spite of these endowments, the sector has continued to record a declining productivity. The capacity of the sector to fulfil its tradition roles in Nigerian economy has been constrained by various social-economic and structural problem such as; Unavailability of credits to local farmers

The civil war of the late 1960s

The severe drought of the early 1970s and 1980s

The discovery of oil (the oil boom of the 1970 created relative disincentives for agriculture in relation to other sectors of the economy).

High interest rates on loans to farmers

Rural- urban migration

Ineffective institutions charged with policy implementations.

Not until recently, have government seriously thought and attempted to mobilize potential savings for the rural farmers. Commercial banks themselves have given little attention to the approval of loans to farmers for fear of defaults. Where credits are received from other sources apart from government and commercial lending, the interest rates have been too high. These reported high interest rates are stark realities to the peasant farmers.  However, Ogunfowora et al (1972:35) attributed most of the short comings on institutional credits in Nigeria to factors such as, ineffective supervision or monitoring insufficient funds, political interference, cumbersome and time-consuming loan processing, large loan defaults and absence of financial projections.

The question deducible from the above is,

a. How have the credit institutions, especially commercial banks, been able to impact positively on the level of agricultural productivity in Nigeria a midst aforementioned problems?

b. Is the high interest rate on loans given to farmers really preventing them from borrowing from credits institutions? Or are the commercial banks afraid of fraud, the risk of not paying them back the loans?

c. Do framers really use the money for agriculture or do they (farmer) use it for their personal needs, i.e getting married, build houses etc?

d. Is market failure the problem of low productively in Nigeria Agricultural sector?

1.3       OBJECTIVE OF THE STUDY

The broad objectives of the study are to investigate the extent to which commercial bank credit had supported agricultural output in Nigeria. However, the specific objectives of the study are as follows;

i. To determine the impact of commercial banks credit on agricultural output in Nigeria.

ii. To determine the impact of agricultural output on economic growth in Nigeria.

1.4       HYPOTHESIS OF THE STUDY

Following from the above stated objectives, the following hypothesis are tested in this study;

1. Commercial banks credit has no significant impact on agricultural output

2. Agricultural output has no significant impact on economic growth.

1.5       SIGNIFICANCE OF THE STUDY

Agriculture is expected to make a significant contribution to net foreign exchange earnings to Nigerian economic growth. As a result, this study sets to reveal the important problems and prospect of the agricultural financing and economic growth in Nigeria. It becomes important to carry out a research on this area of study so as to suggest ways of combating the perceived problems of the peasant scales farmers, such as, loan procurement, and effective credit lending to the benefit of the local farmers. Also, it sets out to help proffer solutions to the problems being faced by the sector. This study will serve as a good background for those intending to carry out further research work on related topics.

1.6       SCOPE AND LIMITATIONS OF THE STUDY

This is an investigation into the impact of commercial bank credit on the agricultural output in Nigeria for the period 1982-2007. The major problem encountered by the researcher is inconsistency of data. The data as reported by CBN is not consistent with that of federal office of statistics.

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