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 924,000 kilo meter 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 a 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 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 the these policies are 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 establish 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 fiber 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 land holders; 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 establish in 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 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 bring 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 is to boost agricultural production as well as contribute to 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).

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 positive relationship between 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 agricultural sector has a positive relationship with the total agricultural production in the country. This implies that the more the public spending on 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 change in budgetary allocation to 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 cause 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 1960s, agriculture was the dominant sector of Nigeria economy. It consisted 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 were 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. Overtime, 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 government invested on 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 on 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 the agriculture output. To achieve this aim the following objectives are formulated:

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

II. To determine 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 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 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.