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THE IMPACT OF MONETARY POLICY ON AGRIC FINANCE IN NIGERIA ECONOMY

CHAPTER ONE

INTRODUCTION

1.1    BACKGROUND OF THE STUDY

A major problem of most developing countries of which, one, is their inability to manage their resources effectively, it does not matter whether the country is rich or poor, big or small. Thus, whether the country has limited resources, it tends not to display enough imagination in the management of what IS available. On the other hand, where the country is lucky to have abundant resources, everyone concerned, with the management of what is available or it's affairs is so overwhelmed that they are unable to sort out their priorities. Nigeria is primarily an agricultural country and it is richly endowed with agricultural resources (Eubuomwa, G.O. 1997). There is hardly any need to stress the importance of agriculture in the economic life of this country. From the early 1950 to the 1960, agriculture played a very big role in the economic development of Nigeria as a nation, as it provided the necessary resources for export to earn the much needed foreign exchange as at that time.

According to Anyanwu, J.C. (1997), inspite of urbanization and the oil boom in the 70's, agriculture still serve as the sustainer of the Nigerian economy. Furthermore, a greater percentage of the country's foreign exchange is contributed by the agricultural sector due to the exportation of cash crops and other agricultural products.

This sector also provides the bulk of employment, income and food for the population and also provides the raw materials for agro-based industries as well as market for industrial goods. Most of Nigeria's agriculture is centred around small scale family holding, using the family labour force and occasionally using hired labour during planting, weeding and harvesting seasons. The average farmer relied on his own capital as well as non-financial institution's source for working capital e.g. borrowing from friends, local money lenders and traders. Loans from such sources are usually made directly to the borrowers by the lenders. This method of borrowing is common in areas where individuals are familiar with and share confidence in one another. This form of financing helps to reduce administrative delays associated with the banks form of financing agricultural projects. This quality of the non­financial institutions is made very popular among peasant farmers.

Dwivedi, D.N. (2002), describes monetary policy as an essential programme of action undertaken by the monetary authorities generally the Central Bank of Nigeria (CBN), to control and regulate the supply of money within the public an the flow of credit with a view to achieving predetermined macro economic goals. The reforms include, but are not limited to currency and exchange rate adjustments. They include others as well e.g. better balancing of public sector accounts, increased use of cheques and efficiency in the progressive monetization of the economy, initiation of specialized banking institutions, encouragement of certain public organizations to patronize the domestic capital market, genuine decentralization of the Central Bank of Nigeria operative structure, permeation of legitimate banking into the rural and urban areas and changes in the legal foundations monetary organization, aimed at redirecting the flow of inevitable funds in accord with policy goals.

1.2    STATEMENT OF RESEARCH PROBLEMS

The following problems, which are pertinent to the issue under investigation, are:

1.  Problem to evaluation the impact of interest rate on agric financing.

2.  Problem to identify the effect price stability on development of agriculture in Nigeria.

3.  To evaluate the role of monetary policy in agricultural sector and financing in Nigeria.

4. In adequate supply of fertilizers despite the huge amount spent by the government on subsidy, exchange rate policy reversal, trade reform lapses and interest rate policy distortions.

1.3    THE AIM AND OBJECTIVES OF THE STUDY

This research work aim at achieving the following objectives.

i.  To evaluate the impact of interest rate on agric financing.

ii.  To identify the effect of price stability on the development of agric sector.

iii.  To evaluate the role of exchange rate on Agricultural financial in Nigeria.

1.4    RESEARCH QUESTIONS

i.       How does monetary policy influence agricultural financing?

ii.      What measures are available to the agricultural product to ensure that the operation is effectively carried out?

iii.     What impact/effect does monetary policy have on· banking industry?

iv.     How does the money policy ensure that agricultural product in Nigeria are well organized and arranged.

v.      To evaluate the agricultural product so as to yield good result for the economy.

1.5    THE STATEMENT OF RESEARCH HYPOTHESES

1.     Ho:     That there is no strong relationship between interest rate an Agric financing.

HA:    That there is strong relationship between interest rate and Agric financing.

2.       Ho:     That there is no strong relationship between sustainable price level and development of agric sector.

HA:    That there is strong relationship between sustainable price level and development of agric sector.

3.    Ho:     That there is no strong relationship between Exchange rate and development of agric sector

H1:     That there is strong relationship between Exchange rate and development of agric sector.

1.6    RESEARCH METHODOLOGY

Methods of study: This study employ the use of Econometric Analysis to test for the relationship between dependent and independent variables.

Sources of data: The data shall be collected from secondary source of data generation basically through federal of statistics, CBN and other relevant information.

Model Specification:

Y= GDP

X1 = Price

X2 = Interest

X3 = Exchange rate

X3 = GDT

GDP = bo + bi PR x + b2lRT + b3 EXR + b4 GD.T + Ut

1.7    SIGNIFICANCE OF STUDY

This research project is relevant due to the fact that it will help individual, firm, and government

·       Individuals: show the relationship negative or positive that exists between monetary policies and agricultural financing.

·       Government: This is important because it will demonstrate how monetary policies can be used effectively in financing agriculture in Nigeria. Additionally, this work stresses the need for First Bank of Nigeria to pay more attention to this sector as well as researchers.

·       Firm: It assist an organization in the determining the most favourably mechanism to be used in an agricultural sector.

1.8    THE SCOPE AND LIMITATION OF STUDY

This research work hopes to centre on the monetary policies on agriculture in the Nigerian monetary activities. It is also limited to the Agric business and small medium Enterprise Department of First Bank of Nigeria from 1980-2009.

A study of this nature like any other study is not without limitation. The major limitation encountered was that of data collection, since data were collected from various publications, therefore personal interaction and collection of data could not be undertaken. However, as much as data needed to be reconstructed, to the form desired would have to be taken as factual.

Also, the problem of obtaining up to data statistics impede the study seriously, as some of the data were not available as at the period of conducting the study. Other related problems include time factor coupled with academic work.

1.9    DEFINITION OF TERMS

AGRICULTURE: Agriculture involves the cultivation of land; raising and rearing of animals for the purpose of production of food for man, feed for animals and raw materials for industries. It involves cropping, livestock, fishery, processing and marketing of these agricultural products.

MONETARY POLICY: G.K. Shaw (Jhingan, M.L. 2004) defines it as any conscious action undertaken by the monetary authority (Central Bank of Nigeria) to change the quantity availability or cost of money i.e. interest rate.

CBN: This means the Central Bank of Nigeria. It is the highest monetary authority in Nigeria.

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