IMPACT OF AGRICULTURAL OUTPUT ON THE NIGERIAN ECONOMY

CHAPTER ONE: INTRODUCTION

1.1      Background of the study

Agriculture is the foundation and bedrock upon which the development of stable human society has depended on throughout the whole universe, such is the case in rural and urban communities. Agriculture is concerned with the husbandry of crops and animals for food and other purposes. The study of the history of economics provides us with ample evidence that agricultural revolution is a fundamental pre-condition for economic growth, especially in developing countries (Woolf and Jones1969, Oluwasanmi 1966). The agricultural sector serves as the bases for industrial and economic springboard from which a country’s growth and development can take off. Indeed, more often than not, agricultural activities are usually concentrated in the less developed rural areas where there is a need for rural transformation, redistribution, poverty alleviation and socio-economic growth. The agricultural sector has the potentials to shape the landscape, provide environmental benefits such as conservation, guarantee sustainable management of renewable natural resources, preserve biodiversity and contribute to the viability of rural areas development. Through its spheres of activities at both the macro and micro levels, the agricultural sector is strategically positioned to have a high multiplier and linkage effect on any nation’s quest for socio-economic growth and industrial development. The role of agriculture in reforming both the social and economic framework of an economy cannot be over emphasized. It is a source of food and raw material for the industrial sector. It is also essential for expansion of employment opportunity for the reduction of poverty and improvement of income distribution for speeding up industrialization and easing the pressure of balance of payment (Nwankwu 1981).

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 sector of the Nigerian economy. The growth of the agricultural sector in Nigeria was not smooth. Anyanwu (1967) held that during the colonial period between 1861 to 1960, attention was given to agricultural research and extension services. Among the activities that were done was the establishment of a research station in Lagos by Sir Claude McDonald in 1893, Landmark of 10.4 km was acquired by the British Cotton Growing Association (BCGA) in 1899 for experimental purpose strictly for cotton and was named “Moor Plantation” in Ibadan. In 1912, the Department of Agriculture was established in each of the then southern and Northern Nigeria, but the activities of the department were virtually suspended between 1912 and 1921 as a result of the First World War and its aftermath. The period between 1929 and 1945 was a difficult one for the agricultural sector of Nigeria. This was the period of great depression when the world prices of commodities fluctuated. This affected the agricultural sector negatively because the volume of agricultural product increased but the value did not increase proportionally. The period 1945 to 1965 marked the period of export boom, because counties were just recovering from the Second World War and these countries needed to develop. They depended on primary production for the beginning stage of industrialization. They needed to revitalize their industrial sector by demanding primary goods. Prices of primary products rose higher again because there were speculations that there would be a third world war due to the outbreak of the Korean War. However, after this period, there came another period of price instability. This made the reliance on agriculture and its products to fall, leading to the establishment of a marketing board. This board bought these products from the local farmers and sold them overseas. In spite of all these, Nigeria made great revenue from agriculture.

In the pre-independence era, the agricultural sector contributed most to the GDP of Nigeria. Helleiner (1966) noted that in 1929, export production amounted to 57% of Nigeria’s revenue of which agriculture contributed about 80% of the export. On attainment of political independence in 1960, the trend was still very much the same, the Nigeria economy could reasonably be described as an agricultural economy, because agriculture served as the engine of growth of the overall economy (Ogen 2003). According to Alkali (1997) Nigeria was the world’s second largest producer of cocoa, largest exporter of palm oil during the period. More so, she was also a leading exporter of other major commodities such as cotton, groundnut, rubber and hides and skins. Between 1964 and 1965, agricultural output accounted for 55% of GDP and employed 70% of the adult workforce (Matton, 1981). In 1970, agricultural export crops like cocoa, groundnut, cotton, rubber, palm oil, palm kernel, etc. accounted for an average of between 65% and 75% of Nigerian foreign exchange earnings and provided the most important source of revenue for the federal as well as state government through export products and sale taxes (Ekundare 1973). Despite the reliance of Nigerian peasant farmers on traditional tools and indigenous farming methods, these farmers produced 70% of Nigerian’s exports and 95% of its food needs (Lawal, 1997).  Ever since then, Nigeria has been witnessing extreme poverty and insufficiency of basic food items. The agricultural sector contributions now accounts for less than 5% of Nigeria’s GDP (Olagbaju and Fashola, 1996). This boom brought a distortion of the labour market which produced adverse effects on the production levels of both food and cash crops. This was so because able bodied men who hitherto lived in the rural areas migrated to the urban cities in search of better jobs at the expense of agricultural production. Many financial experts are of the view that an economy that largely depends on a sector is definitely not a healthy one. A healthy economy is one that is diversified and not mainstreamed.

It is against this backdrop that this paper sets out primarily to find out the impact of agricultural output on Nigerian economic growth. As noted earlier, the neglect of the agricultural sector and the dependence of Nigeria on a mono-cultural crude oil based economy had not augured well for the well-being of the Nigerian economy. It becomes therefore imperative to embark on this study.

1.2      Statement of Problem

It has been argued over the years by researchers that the agricultural sector has been a recognized sector in most parts of the world. Nigeria is endowed with huge expanse of fertile agricultural lands which is good for production of different kinds of agricultural products that will cater for the teeming population of Nigeria and more so a large population that can sustain a high productive and profitable agricultural sector. There have been a number of valuable studies on the relationship between agriculture and economic growth. Most researchers reckoned the view that agricultural sector contributes to the growth of an economy. Johnston and Mellor (1961) observed that agriculture contributes to economic growth and development through five inter-sectoral linkages. The sectors are linked through supply of surplus labor to firms in the industrial sector, supply of food for domestic consumption, provision of market for industrial output, supply of domestic savings for industrial investment and supply of foreign exchange from agricultural export earnings to finance import of intermediate and capital goods. The role of agricultural production in Nigeria is not only to provide the food needed to feed the rapidly growing population but also to provide the money and materials needed for industrialization and for bringing the country into the industrial and technical age (Oyenuga 1967). But in contrast, the sector has suffered from years of poor management, inconsistent and poorly implemented government policies, government neglect and lack of basic infrastructure. The contribution of the sector to Nigeria’s GDP has drastically reduced. In the 1960s, agriculture accounted for 65-70% of total exports; it fell to about 40% in the 1970s, and crashed to less than 40% in 2010(CBN 2011). Nigeria is no longer a major exporter of cocoa, groundnut, rubber and palm products. Its Cocoa production mostly came from obsolete varieties and over-aged trees and production is stagnant at around 150,000 tones annually. There is also a decline in groundnut, palm oil and other major export crops (United States Department of State, 2005). The decline in agricultural production was largely due to the rise of oil shipments (A.B Sekumade 2009). The sector has not kept up with the rapid population growth and Nigeria once a large net exporter of agricultural products now imports most of its food requirements. Most researchers have sought to explain the reason for this trend. Some attributed it solely to the discovery of oil in commercial quantity while other studies revealed that unstable and often poor economic policies (of pricing, trade and exchange rate), the relative abundance of the sector were all important factors responsible for the decline in agricultural sector contributions to the nation’s economic growth and development. A cross review of the previous studies so far indicates that government over the years have formulated and implemented various policies and projects aimed at putting back the sector to its vital place in the economy. Among such policies includes River Basin development authority, Operation feed the nation, Green revolution, National directorate of food, to mention but a few.

However, with evidence from few empirical literatures, no significant success has so far been achieved due to several problems confronting the performance of the sector (Yusuf 2005) which includes technical issues, response constraints and organizational constraints. The researcher observed that the persistent decrease in agricultural production has led to the scarcity in food supply accompanied by increase in their prices. Also there is the problem of inadequate modern farm implements which affected the productivity of the sector as the crude implements can no longer increase output to meet up with the increasing population and the demand for agricultural products. This study shall employ Granger Causality test to analyze the relationship between government expenditure or spending on the sector and agricultural output. This is so because the budgetary allocation to the sector has continued to decline over the years. Thus, this study seeks to address these gaps noted empirically by examining the impact of agricultural output on the Nigerian economy and as well granger cause the contribution between agricultural sector contribution to gross domestic product and government expenditure on agriculture. This study was also aimed at finding how best societal welfare can be improved from a lower stage to a better stage using agricultural sectors’ contribution to the economy. It will also identify all areas in which the agricultural sector failed and will consider corrective measures.

1.3      Research questions

Accordingly, the research work has essential questions that will serve as the engine of the study. The following research questions are formulated to guide the study:

1. What is the impact of agricultural output on Nigeria’s economic growth?
2. Does long-run relationship exists between agricultural output and economic growth in Nigeria?

1.4      Objectives of the study

Prior to the problem statement of this study, the general objective of the study is to review the impact of Agricultural output on the Nigerian economy.

The specific objective therefore is

1. To ascertain the effect of agricultural output on Nigeria’s economic growth.
2. To determine if long-run relationship exists between agricultural output and economic growth in Nigeria.

1.5      Research hypothesis

The hypothesis and their alternatives are stated below:

Hypothesis 1

H₀: There is no significant impact of the agricultural output on the economic growth of Nigeria.

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

Hypothesis 2

H₀: There is no long-run relationship between agricultural output and economic growth in Nigeria.

H₁: There is a long-run relationship between agricultural output and economic growth in Nigeria

1.6      Significance of the study

Significantly, this research work is derived from the fact that identifying the impact of Agricultural output on the Nigerian economy and their interaction will be of great economic importance. To this end,

1. Agriculture is expected to be a sector that will cater for at least 60% of the total population of the country and also contribute to the net foreign exchange earnings in Nigeria which will help to improve our GDP. But of recent, this has not been the case. This study will help reveal the problems inherent in this sector and help government proffer solution to the dwindling state of the sector.
2. This work will be advantageous to schools (staffs and students) and will help them understand the importance of farming no matter how small the scale of production may be.
3. This research work will also help economic analysts and policy developers to formulate policies that will bring out positive changes to the Nigerian economy.

1.7           Organization of the study

The work is made up of five chapters, chapter one is the introductory chapter. A review of related literature has been carried out in chapter two. Chapter three provides a detail description of the research methodology and model specification. Chapter four looks at the data presentation, analyses and discussion of findings. The project is concluded in chapter five with a summary of findings, conclusion and recommendations.

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