THE IMPACT OF GOVERNMENT EXPENDITURE ON AGRICULTURE AND AGRICULTURAL OUTPUT IN NIGERIA


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THE IMPACT OF GOVERNMENT EXPENDITURE ON AGRICULTURE AND AGRICULTURAL OUTPUT IN NIGERIA

CHAPTER ONE:

           INTRODUCTION

1.1     Background to the study

 Agriculture involves the cultivation of land, raising and rearing of animals for the purpose of production of food for man feed, and raw materials for industries (Anyawu, 1972, cited in Ebomche, 2010). Essentially, it is composed of crop production, livestock, forestry and fishing. The agricultural sector has the potential to be the industrial and economic springboard from which a country’s development can take off. Nigeria, which spans an area of the 924,000-kilometer square is in West Africa between Latitudes 4 o to 14o North of the Equator and between Longitudes 3o and 15o east of the Greenwich Meridian. To the north, the country is bounded by the Niger Republic and Chad; in the west by the Benin Republic, in the East by the Cameroon Republic and to the south by the Atlantic Ocean. Nigeria is generously endowed with abundant natural resources. With its reserves of human and natural resources, Nigeria has the potential to build a prosperous economy and provide for the basic needs of the population. This enormous resource base if well managed could support a vibrant agricultural sector capable of ensuring the supply of raw materials for the industrial sector as well as providing gainful employment for the teeming population (Ukeje 2002).

In the last decade, its impact may not have been so prominent because of the dominating effect of the oil sector which annually contributed not less than 96% of the nation’s total export earnings (CBN, 2005). The population involved in farming is between 60 and 70% (Nwajiuba, 2012). The sector contributed an average of 36.6% to the GDP during the years of study 1980-2014, which was highest in 1992, 43.6% and 2002, 43.9% and lowest in 1980, 20.6%  The total federal expenditure that was allocated to agriculture between 1980 and 2014 was less than 4% (CBN, 2010).

Public spending (e.g. Budget) is one of the most direct effective instruments used by governments to promote agricultural growth and poverty reduction. (Ukeje 2002). Public spending at the federal level and sub-national level follows basic structure-recurrent spending and capital spending. This spending structure is characterized by different expenditure categories depending on the ministry, department or agency. The nature of the support given to agriculture by various governments in the country varied over the years. Before independence, the assistance to the sector was generally aimed at developing the export crops required by the overseas industries. After independence when the national development plans were prepared, agricultural support took a much formal form, and thus presented a more serious impression of what government intended doing for the sector. However what most of the efforts later turned out to be as can be inferred from the allocations made in the various national development plans and annual budgets, leave much to be desired. When compared to other sectors like mining, manufacturing, education, and health, agriculture virtually received the least annual allocations that are often inadequate to put the sector on sustainable grounds. This accounts to a large extent for the poor performance of many institutional reforms and strengthening which were over the years undertaken in the sector (Nwajiuba, 2012).

Furthermore, government over the years has embarked on various policies and programmes aimed at strengthening the sector in order to continue performing its roles, as well as measures for combating poverty. Notable among these policies is the Operation Feed the Nation (OFN), programme was launched with objectives of increasing food production, attaining self-sufficiency in food supply and encouraging all sections of the Nigerian population to grow food, encouraging balanced nutrition and by extension of a healthy nation, the  Green Revolution Programme (GR) was established in 1980 by the civilian regime aimed at wiping away hunger through credit supply to farmers, encourage and intensify cooperative education, mobilizing the local people to actively participate in agriculture, application of research on food and fibre to enhance abundance in staple food production, processing and distribution in Nigeria. Land Use Decree which was promulgated in 1978 in other to first effect structural change in the system of land tenure; secondly, to achieve fast economic and social transformation; thirdly, to negate economic inequality caused by the appropriation of rising land values by land speculators and landholders; and lastly to make land available easily and cheaply, to both the government and private individual developers., The focus of the Decree was to reform the land tenure system, which was believed to constitute a formidable obstacle to the development of agriculture in Nigeria. Rural Banking Programme,(RBP) also established from 1977 to 1991. Banks were encouraged to not only establish rural branches but also to extend at least 50 per cent of the deposit mobilized from the rural areas as loans and advances to rural dwellers. Defaulting banks were to be penalized. National FADAMA Development Programme aimed at increasing the income of beneficiaries by at least 20%. The programme was designed in 1993 to promote simple and low-cost improved irrigation technology under World Bank financing. Family Economic Advancement Programme (FEAP), 1997 to 2001. This was established to serve the credit needs of the family in their daily economic activities through input supplies, loan in form of cash, and capacity building. National Poverty Eradication Programme (NAPEP), 1999 to date. Like FEAP, NAPEP was established by the federal government. The mode of operation is tailored towards directed (subsidized) credit to farmers.

Microfinance, 2005 to date. Microfinance brings financial services such as savings, deposit, payments, transfers, micro insurance and micro leasing to the active (or productive) poor and low-income people, who would otherwise have no access to such services. The National Fertilizer Company of Nigeria (NAFCON) was also established in 1981 but started production in 198 which was envisioned as a competitive private input market to develop and disseminate adequate quantity and quality of fertilizer products that are timely available and accessible to the teeming farm population of 3 Nigeria, operating under a supportive public sector, and without undermining the environment, and the latest is the Agriculture Development Project (ADP). The critical mandate and objective of the ADPs are to boost agricultural production as well as contribute to the rural livelihood and food security. Meanwhile, these policies have not helped much in improving significantly the agricultural sector as the costs involved are still more than the benefits realized (Iganiga and Unemhilin, 2011).

Average total annual expenditure on agriculture has been increasing over the years. Total annual expenditure on agriculture increased on the average from N0.02 billion in the 1981-1986 period through an average of N0.2 billion per annum in 1987-1992 to N1.84 billion in 1993-1998 periods. Total annual expenditure on agriculture increased significantly on the average between 1999 and 2006 to N16.97 billion and further to N37.13 billion between 2007 and 2008, but fell to N36.19 billion between 2011 and 2014 (CBN, 2014). Despite these huge sums of money allocated to the sector over the years, the state of agriculture in Nigeria still remains poor and largely underdeveloped.

Agricultural sector output has fluctuated widely and productivity has also declined as shown in table 1 below. In terms of contribution to GDP, Available statistics from the CBN shows that the agricultural sector’s share of GDP increased from 28% in 1985 to 32% in 1988, dropped to 31% in 1989, rose again to 37% in 1990 but fell significantly to 24% in 1992 and increased to 37% in1994. It was 32% in 1996 and rose to 40% in 1998, dropped again to 27% in 2000, increased to 37% and fell to 31% in 2002 and 2006 respectively. The percentage contribution of the agricultural sector to GDP fell persistently from 0.37 in 2009 to 0.22 in 2012 and to 0.20 in 2014 (CBN, 2014).

Nigeria Agricultural output between 1995-2014

yeas

percentage%

1985

28

1988

32

1989

31

1990

37

1992

37

1996

32

1998

40

2000

27

2001

37

2002

31

2006

31

2009

0.37

2012

0.22

2014

0.20

Table1. Source: CBN annual bulletin (2014)

The poor state of the sector has been blamed on oil glut and its consequences on several occasions, as this pattern was not an outcome of increased productivity in the non-agricultural sectors as expected of the industrialization process; rather it was the result of low productivity due to negligence of the agriculture sector (Christaensen and Demery, 2007; and Falola and Heaton, 2008).

Ogen (2007) believes that the agricultural sector has a multiplier effect on any nation’s socio-economic and industrial fabric because of the multifunctional nature of agriculture. Ogwuma (1981), studied on public expenditure in agricultural sector using econometric analysis. Based on his report, agricultural financing in Nigeria shows a positive relationship between the interest rate and loanable funds on the level of agricultural output. Using time-series data, Lawal (2011) attempted to verify the amount of federal government expenditure on agriculture in the thirty-year period 1979 to 2007. Significant statistical evidence obtained from the analysis showed that government spending does not follow a regular pattern and that the contribution of the agricultural sector to the GDP is in direct relationship with government funding to the sector. Adofu (2012) in their work; effects of government budgetary allocation to agricultural output in Nigeria (1995-2009) show that the percentage, degree or amount of budgetary allocation to the agricultural sector has a positive relationship with the total agricultural production in the country. This implies that the more the public spending on the agricultural sector, the more the improvements in the performance of the agricultural sector. Also, a large degree of change in agricultural output is accounted for by a change in budgetary allocation to the agricultural sector. Thus, budgetary allocation to agriculture has a large impact on agricultural output. However, none of these studies employed Granger Causality to analyze the relationship between government expenditure and agricultural output that is if government expenditure granger causes agricultural output or agricultural output granger causes government expenditure. This study is an improvement on other studies on the relationship between government expenditure on agriculture and agricultural output in Nigeria.

1.2    Statement of the Problem

Prior to the discovery of oil in the late 1950s and early The 1960s, agriculture was the dominant sector of Nigeria economy. It consisted of over 65 per cent of the country's Gross Domestic Product (GDP) and provided the bulk of the foreign exchange earnings through the export of cash crops. But with the emergence of oil as a major source of government revenue and exchange earning, the sector was neglected and hence led to its decline in output (Ukpong and Malgwi 1993; Iwayemi 1994; Ijaiya 2000).

Having realized the declining of agriculture output, government over the years has put in place certain policy measures and, programmes with a view to increasing the output. However a peep into the Federal Government capital expenditure on agriculture; as a ratio of the total Federal Government capital expenditure shows a gloomy future for sector development in the country. As from 1977 to 2002, the federal government capital expenditure on agriculture was low except in the following years; .1980,1984,1987,1988,1993.1994,19  and 2002, because those were the years that coincides with different government agricultural development policies and programmes such as the Green Revolution in 1980, Food for all Programme in 1987, the Better Life for Rural Women Programme also in 1987, the Family Support Programme in 1993 and the  Economic Empowerment Development Strategy. Over time, this expenditure has been on agriculture without expressly translating to a corresponding agricultural output. Therefore the interest of this research work is to investigate the relationship between government expenditure and agricultural output in Nigeria from 1980-2014.

1.3    Research Questions

At the end of this study, the researcher will provide answers to the following questions:

       I.            How much has the government invested in agriculture in Nigeria from 1980 to 2014?

    II.            What has been the agricultural output from 1980 to 2014?

 III.            In what ways have the government policies on agriculture aid encouraged private and public participants in the sector?

 IV.            In what ways government expenditure agriculture can be made effective to increase its output?

1.4    Aim and Objective of the study

The aim of this study is to examine the impact of Nigeria’s Federal Government expenditure on agriculture output. To achieve this aim the following objectives are formulated:

       I.            To ascertain the amount of money spent on the agricultural sector by the government from 1980 to 2014.

    II.            To determine the agricultural output from 1980 to 2014.

 III.            To examine the ways government policies on agriculture will enhance private and public participants in the sector?

 IV.            To help in highlighting alternative procedures that can be taken to impure methods of enhancing agricultural output effectively.

1.5    The hypothesis of the Study

Ho = Public expenditure on agriculture has no significant impact on agricultural output.

1.6    Significance of the Study

The significance of the study presents the value or contribution which the research will make to the existing knowledge. Obasi (1999:73) asserts that research is the most important tool for advancing knowledge and enables man to relate more effectively to his environment. The significance of this study is categorized into theoretical, empirical and practical significance.

1.6.1 Theoretical Significance:

Theoretically, this study has the potential of contributing greatly to the growth of existing theories in social sciences, particularly in public administration by helping to enrich the bank of knowledge through its reliable findings on the assessment of the impact of public expenditure on agricultural output in the Nigerian economy. This is to say that our study would assist in improving the frontiers of knowledge especially in the management of the public policies in Nigeria, especially in the agricultural sector. The study will be of immense significance in ascertaining the progress so far made by the government in improving the Nigerian economy through agriculture. On the other hand, the study will assist in unveiling the challenges or factors militating against effective implementation of government policies and programmes on agriculture and will make useful suggestions towards ensuring the achievement of goals of such agricultural policies and programmes. This is important because it is only through viable agricultural policies that the Government can revamp the agricultural sector and ensure its target goals and objectives in national development. This study also has the potentials of contributing immensely to the existing body of literature on this subject matter. The literature on the assessing of the impact of public expenditure on agricultural output on the Nigerian economy is richly available but few have been able to justify the current poor state of agriculture in Nigeria from policy perspectives.

1.6.2 Empirical Significance:

Empirically, this study will serve as a foundation or base for future researchers who may in due course of time wish to embark on the investigation on assessing the impact of public expenditure on agricultural output of the Nigerian economy. In other words, this research will serve academia as a useful and veritable a bibliographical reference which will stimulate research for other related studies in relation to agricultural policies and their impact in its output in the Nigeria economy.

1.6.3 Practical Significance:

Practically, this study is considered significant because it will contribute to providing the decision-makers and other key actors in the government with the road- maps that will necessitate prompt, responsive and efficient policymaking in Nigerian agricultural sector. It will also suggest the panacea through which frequent failures in Nigerian agricultural policies can be effectively tackled.

Once regarded as the mainstay of the economy, adequate public agricultural expenditure on the agricultural sector is significant. It is believed that the discovery of the study will benefit the government of Nigeria tremendously, in terms of agricultural policies, budgetary allocation on agricultural expenditure, the importance of agriculture output and its effects on the growth of the country, also to encourage participants both the private and the public alike, provision of adequate subsidies will enable the farmers to achieve whatever goals and objectives. Furthermore, most areas of output have their benefit as well as challenges in Nigeria. Thus, the study will render solutions to such challenges. The literature review will serve as a useful source of the secondary database for the academic world and Nigeria at large. Last, but not least, this study has the potential to strategically improve the practical steps in implementations of the government agricultural policies through its advocacy on reforming the public bureaucracies in Nigeria especially those concerned with the implementation of government policies on agriculture. In this regard, this work is a practical painstaking “post mortem” surgical examination of the problems of the Nigerian agricultural sector as well as the way forward.

1.7    Scope of the study

This study is limited to the analysis of the impact of public expenditure on agricultural output in Nigeria. Therefore, the study intends to cover the period of thirty-four years from 1980-2014; Basically, this research focuses on the trend of public agricultural expenditure and some contributions of agriculture to the output of the Nigerian economy itself during the period under study. The scope will also comprise of some inherent problem facing the agricultural sector, its prospects and policy recommendation to attain a high level of productivity. The choice of this study period is based on the availability of data.  

1.8. The Study Area.

1.8.1. Location of the Study.

The Federal Republic of Nigeria is in West Africa between Latitudes 4 o to 14o North of the Equator and between Longitudes 3o and 15o East of the Greenwich Meridian. To the north, the country is bounded by the Niger Republic and Chad; in the west by the Benin Republic, in the East by the Cameroon Republic and to the south by the Atlantic Ocean. Nigeria has a land area of about 923 769 kilometre square (FOS, 1989); a north-south length of about 1 450 kilometre square and a west-east breadth of about 800-kilo meter square. Its total land boundary is 4 047 km while the coastline is 853 km. an estimate of irrigated land in 1993 was 9 570 km2 and arable land about 35 %; 15 % pasture; 10 % forest reserve; 10 % for settlements and the remaining 30 % considered uncultivable for one reason or the other (FMEN, 2001).

 Nigeria has diverse biophysical characteristics, ethnic nationalities, agro-ecological zones and socio-economic conditions. It has evolved over time and space in terms of administrative structures and the nature of governance. It started as an amalgamated British colony in 1914, became a federation in 1963; then became independent in 1960 as a two-unit region comprising the Northern and Southern provinces. An additional Mid-Western region was created in 1963. Also in 1963, Nigeria has proclaimed a republic. The three former regions (Western, Eastern and Northern) excluding the Midwest were later divided into 12 states in 1967 along with a number of sub-administrative divisions for each state. In 1976 the states were increased to 19, in 1987 to 21 and 30 in 1987 (Figure 1). Further changes in the administrative composition of the country include the redefining of the political regions as local government areas (LGAs) and the creation of the new Abuja Federal Capital Territory (FCT) on December 12 1991. With this, Lagos ceased to be the country’s capital, a position that it held right from before independence. Thus today Abuja is the capital while Lagos is the largest city in terms of population and the main commercial centre. There are now 744 LGAs. The present 36 States structure emerged in 1996 during the time of erstwhile Babaginda, with the creation of 6 additional states namely Bayelsa, Ebonyi, Ekiti, Gombe, Nasarawa and Zamfara. Today Nigeria consists of 36 states and the Federal Capital Territory located at Abuja as shown in (figure 2)  below: (Figure 2) Nigeria map showing the thirty-six state and the FCT

 1.8.2. Population

Nigeria is the most populous country in Africa with a population of 140,003,542 inhabitants (2006, National population Census). The average annual growth rate according to 2006 was 2.38 %. Nigeria’s population is divided among 478 different ethnic groups, some numbering fewer than 10 000 people. Of the different ethnic groups, ten (Hausa, Fulani, Yoruba, Ibo, Kanuri, Tiv, Edo, Nupe, Ibibio and Ijaw) account for nearly 80% of the population. Twenty-five per cent of the population is in the former Western Region (12% of the area), 21% in the former Eastern Region (9% of the area), and 53% in the former Northern Region (79% of the area). The lowest population densities are in the northern regions, especially in Borno, Adamawa, Kebbi, Kwara, Taraba, Yobe, and the Zamfara States.

 1.8.3 Economic activities of the study area

Nigeria's economy has been dominated since the late nineteen-sixties by the export of oil, a sector dominated by the Government. By the mid-nineteen-seventies, about 75% of Federal revenue came from petroleum. The share of exports accounted for by fuel, mineral and metals continued to rise and stood at 96% in 1991 (World Bank, 1993). In 2004, the share of export commodities from petroleum and petroleum products was 95 %, while cocoa, rubber and others contributed most of the remainder of exports. Nigeria’s industrial production growth rate was 2.3 % (2004 estimate) (CIA World Factbook, 2004). GDP growth rose marginally in 2004, led by oil and natural gas exports. The capital-intensive oil sector provides 20% of GDP, 95% of foreign exchange earnings, and about 65% of budgetary revenues (2004 estimate) (CIA World Factbook, 2004). Table 2 shows production indices for Agriculture from 1995 – 2004.

Agriculture Production indices

Indices

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Total Agricultural Production  (Export value at base year quantity (1000$)

.

THE IMPACT OF GOVERNMENT EXPENDITURE ON AGRICULTURE AND AGRICULTURAL OUTPUT IN NIGERIA


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