COMMERCIAL BANK CREDIT AND AGRICULTURAL OUTPUT IN NIGERIA: (1982-2007)

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ABSTRACT

This research work examined the impact of commercial Bank credit on Agricultural output in Nigeria using Macroeconomic variables (commercial bank credit and agricultural output). The broad objective of the study is to investigate the extent to which commercial bank credit had supported agricultural output Nigeria. The specific objectives are: (i) to determine the impact of commercial banks credit on agricultural output in Nigeria, and (i) to determine the impact of agricultural output on economic growth in Nigeria. The methodology adopted  for the study was ordinary least square (OLs) involving the student’s T-test, to test  the significance  of the individual parameter estimate, the F-test, to test the significance of the entire regression plane, the R² and Adjusted R², to test the joint influence of the explanatory variables on the dependent variable. Finally, Durbin-Watson’s statistics (DW) was used to check the presence or absence of serial correlation on the data.  After the regression, the result shows that: firstly, agricultural output as well as commercial bank credit to agriculture and real interest rate contributed a lot to economic growth in Nigeria. Secondly there is a general agreement that Nigeria agricultural sector is grossly underfunded.  Finally, the share of actual expenditure that went to the agricultural sector compared unfavorable with the shares that went to other sectors. Based on the findings above, the researcher made the flowing suggestions:

There is the need for improvement of public expenditure tracking system in agricultural sector.

There is also the need for clarification of the roles of the three tiers of government in agricultural services delivery.

There is the need for applied research targeted at priority issues

 CHAPTER ONE

INTRODUCTION

• BACKGROUND TO THE STUDY……………………………………….1
• STATEMENT OF PROBLEM…………………..………………………..6
• OBJECTIVE OF THE STUDY…………………………….…………..…9
• HYPOTHESIS OF THE STUDY…………………………………………9
• SIGNIFICANCE OF THE STUDY…………………….………………..10
• SCOPE AND LIMITATION OF HE STUDY…………………………..10

CHAPTER TWO

REVIEW OF RELATED LITERATURE

2.1    THEORITICAL L ITERATURE……………………………….……….12

2.1.1 THE PRE-REQUISITE THESIS VERSUS

THE CONCURRENCE THESIS……………………………………….14

2.2    FINANCING AGRICULTURE IN NIGERIA …………………………18

2.1.1           SOURCES OF AGRICULTURAL FINANCING …………………….20

2.3    COMMERCIAL BANK CREDIT AND AGRICULTURAL OUTPUT………………………………………………………………… 23

2.4    EMPIRICAL LITERATURE……………………………………………..28

CHAPTER THREE

RESEARCH METHODOLOGY

3.1    MODEL SPECIFICATION …………………………………….……….34

3.2    ESTIMATION PROCEDURE………………..…………………………36

3.3    EVALUATION TECHNIQUES………..………………………………..37

3.4    DATA REQUIRED AND SOURCES…………………………………..41

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS

4.1    UNIT ROOT TEST………………………………………………………43

4.2    CO INTEGRATION TEST………………………………………………44

4.3    PRESENTATION AND INTERPRESTATION OF RESULT………..46

4.3:1 INTERPRESTATION OF REGRSSION RESULT…………..………..47

4.4    EVALUATION OF EMPIRICAL RESULT……………………………..48

4.4:1 ECONOMIC CRITERIA (A PRIORI EXPECTATION)……………….48

4.4:2 STATISTICAL CRITERIA……………………………………………..50

4.4:3 COEFFICIENT OF DETERMINATION (R²)………………………….51

4.4.4 THE T-STAISTICS……………………………………………………..51

4.4.5 THE F-TEST…………………………………………………………….52

4.5. ECONOMIC CRITERIA (SECOND ORDER TEST)…………………53

CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATION

5.1    SUMMARY……………………………………………..……………..… 59

5.2    CONCLUSION …………………………………………………………..62

5.3    RECOMMENDATION………………………………………..………….63

BIBLIOGRAPHY……………………………………………….…………67

APPENDIX

 

 

 

 

 

 

 

 

 

 

CHAPTER ONE

1.1    BACKGROUND TO THE STUDY

          As confirmed by Ugochukwu (1999:02), 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 (2007:04) 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 consist 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 (1997:213) 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(1975.35) 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 (1996:131) 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 1970^s, 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 year’s, 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 research have shown that Nigeria Is endowed with Huge expance 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(2000:103) 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.