GOVERNMENT EXPENDITURE AND AGRICULTURAL PRODUCTION IN NIGERIA 2010-2017
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ABSTRACTAgriculture has long been recognized as a vital source of livelihood worldwide, with substantial outputs and consistent growth, particularly in developed nations. These countries have prioritized agriculture, responding to their rapidly growing populations. In contrast, Nigeria’s agricultural production has experienced fluctuating trends. To stabilize and significantly enhance production, increasing government investment in the sector is crucial. The resources, both financial and material, invested in the agricultural sector play a critical role in its development. This study was conducted to explore the potential relationship between government spending and agricultural production in Nigeria. Specifically, it aimed to determine whether the country’s level of agricultural output is influenced by the scale of government expenditure. To address this, the study utilized the Ordinary Least Squares (OLS) method to analyze data from 2010 to 2017. The findings revealed a positive relationship between the two variables, indicating that agricultural production is significantly influenced by the resources allocated to the sector.
CHAPTER ONE
INTRODUCTION
1.1 Background of the study
Agriculture plays a crucial role in the economic development of any nation, particularly in Nigeria, where it supports the livelihood of approximately 75 percent of the population. According to World Bank data, the sector experienced an annual growth rate of 2.9 percent between 1990 and 1998 (Opportunities in Nigeria’s Agricultural Sector, 2005). The significance of agriculture in a developing economy cannot be overstated. It is expected to meet the majority, if not all, of the country’s food needs, provide essential raw materials for the manufacturing industry, create employment opportunities and income for farmers, and generate foreign exchange for funding capital projects essential for development. However, agricultural progress has been hampered by inadequate infrastructure over the years. Small-scale farmers often cannot afford modern farming tools such as advanced diggers, plows (as opposed to traditional hand hoes), or environmentally safe chemicals, fertilizers, and other necessary inputs. The agricultural sector’s significance in any developing economy is widely recognized, as it is expected to meet the majority, if not all, of the nation’s food requirements, provide essential raw materials for the manufacturing industry, create employment opportunities and income for farmers, and generate significant foreign exchange to fund capital projects for development. Consequently, government expenditure in agriculture, as a form of public sector investment, is vital for transforming the sector and achieving development policy goals. Public expenditure refers to the costs or expenses incurred by the government for its operations and for the benefit of society, particularly as state activities expand. Government spending on agriculture, particularly in areas like infrastructure development, irrigation, input distribution, feeder road construction, research, and extension services, is crucial. These investments are typically managed by the government, not only because of the limited interest from private investors but also due to the government’s strong belief that improved infrastructure and technology will significantly enhance productivity and output growth in the sector. Despite these efforts, the agricultural sector’s performance has generally been deemed unsatisfactory, particularly following the droughts of 1971-73 and the Rosette virus epidemic in 1975 (Ukpong, 1993). While the sector was expected to make a significant contribution to various national economic and social goals, the reality fell short. The result was a surge in food imports, made possible by increased earnings from crude oil exports, which inadvertently discouraged serious domestic farming. In anticipation of the vital role agriculture plays in Nigeria’s overall economic development, several initiatives were introduced in the years before the Structural Adjustment Programme (SAP) to boost the sector’s growth. These initiatives included the subsidized or low-interest rate policies of the 1970s and early 1980s, the creation of specialized institutions to provide loans exclusively to the agricultural sector, direct funding of agricultural production through budget allocations, and the establishment of agriculture-focused institutions and programs such as the Nigerian Agricultural Credit Bank (NACB), Agricultural Credit Guarantee Scheme Fund (ACGSF), Agricultural Development Programmes (ADPS), River Basin Development Scheme (RBDS), and Operation Feed the Nation (OFN). With the implementation of the Structural Adjustment Programme (SAP) in 1986, Commodity Boards were dismantled to motivate farmers by increasing producer prices. However, between 1970 and 1982, the annual production of key export crops like cocoa, rubber, cotton, and groundnuts saw significant declines of 43, 29, 65, and 64 percent, respectively (Olomola, 1998). In contrast, the value of agricultural exports experienced a dramatic increase, rising by 70.5 percent during the 1986-1990 period, largely due to the initial effects of SAP. Although this growth slowed slightly, it remained high at 68.5 percent during the 1991-1995 period, again influenced by SAP, but dropped to a lower 18.2 percent in the 1996-2000 period as the impact of SAP diminished (Manyong, 2003). Despite decades of public sector investment in agriculture, the sector exhibited unstable or fluctuating trends. This research seeks to identify the factors contributing to the decline in agriculture’s role in food supply, Gross Domestic Product (GDP), foreign exchange earnings, and raw materials. Additionally, it examines why government financing policies and programs for agriculture in Nigeria have produced mixed results.
1.2 Problem statement
Agriculture plays a crucial role in Nigeria’s economic development, serving as the primary source of food and employment for a significant portion of the population. However, public expenditure, which is the cornerstone of funding for the agricultural sector, has consistently fallen short of public expectations. For example, a joint study by the International Food Policy and Research Institute (IFPRI) and the World Bank in 2008 revealed that Nigeria’s public spending on agriculture is less than 2% of the total federal annual budget. This figure is notably lower compared to other developing countries, such as Kenya (6%) and Brazil (18%), and falls short of the 10% target set by African leaders under the Comprehensive Africa Agricultural Development Programme (CAADP). Despite limited investment, agriculture has contributed an average of 32% to Nigeria’s GDP from 1996 to 2000 and 42% from 2001 to 2009 (CBN, 2010). According to the CBN Governor in 2011, agriculture made up 40% of the nation’s GDP, yet it received only 1% of total commercial bank loans (People’s Daily, 2011). Researchers have noted that insufficient government funding for agricultural projects has contributed to issues such as deepening food insecurity, social inequality, rural poverty, and hunger, indicating a lack of evidence supporting growth promotion (Ogiri, 2004; Ogbonna and Osondu, 2015). This study aims to assess the impact of government expenditure on agricultural production in Nigeria from 2010 to 2017 and compare it with other factors affecting agricultural output. The findings will inform policy decisions to enhance agricultural productivity in the country.
1.3 Purpose of the Study
The purpose of this study is to analyze how government expenditure influences agricultural production. Specifically, the study aims to:
- Assess the relationship between government spending and agricultural output.
- Evaluate the effects of government expenditure on agricultural production.
- Identify the challenges faced in agricultural production.
1.4 Significance of the Study
The agricultural sector holds significant potential for creating job opportunities, addressing hunger, and offering alternative sources of foreign exchange for the Nigerian economy. This study is conducted to analyze the impact of government spending on agriculture on agricultural output. The insights gained aim to assist policymakers in formulating strategies that will boost agricultural productivity in Nigeria.
1.5 Study Hypotheses
The study has established the following hypotheses for testing:
- H0: Government spending does not affect agricultural production in Nigeria.
- Ha: Government spending does influence agricultural production in Nigeria.
- H0: Government expenditure does not have a significant impact on agricultural production in Nigeria.
- Ha: Government expenditure has a significant impact on agricultural production in Nigeria.
1.6 Scope and Limitations of the Study
This study focuses on the period from 2010 to 2017, during which new agricultural policies were implemented under both the administration of former President Goodluck Jonathan and the Buhari-led administration starting in 2015. It is important to note that the data utilized in this study are sourced from the Statistical Bulletin, the National Office of Statistics, and various journals. These sources are used to illustrate the significance of government expenditure on agricultural output in Nigeria.
1.7 Organization of the Study
The study is structured into five chapters. Chapter one provides an introduction and background to the study. Chapter two reviews relevant literature related to the topic. Chapter three outlines the research methodology used. Chapter four presents the analysis and interpretation of the data. The study concludes with chapter five, which summarizes the findings, draws conclusions, and offers recommendations.