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FEDERAL GOVERNMENT AGRICULTURAL EXPENDITURE, AGRICULTURAL OUTPUT AND ECONOMIC GROWTH IN NIGERIA

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CHAPTER ONE

1.1 BACKGROUND OF THE STUDY

The Nigerian economy during the first decade after independence could be described as an agrarian economy because agriculture served as the engine of growth of the overall economy [Ogen, 2010]. From the stand point of occupational distribution and contribution to GDP, agriculture was the leading sector. Economic history shows that agricultural revolution is basic precondition for economic growth, especially in developing countries [Alabi, 2014]. Agriculture is the life blood of industrialization in the world. According to Akintunde et al [2013], every industrialized country passed through the agrarian era. The maxim that agriculture is the hub of the Nigerian economy underscores the importance placed on agriculture as the engine for growth. Prior to the discovery of oil, the Nigerian economy was predominantly agriculture with abundance of arable land and water resources to foster agricultural development [Iganiga &Unemhilin, 2011]. As it were, the agricultural sector contributed immensely to the Nigerian economy in provision of food for the increasing population, supply of raw materials to industries, major source of employment and generation of foreign exchange earnings [Okumadewa, 1997 and FAO, 2006]. As such, literature abound that stagnation in agricultural production accounts for the economic failure facing Nigeria, while the acceleration in agricultural productivity is the key explanation to industrialization in the developed countries [Lopez, 2004, Yeun, 2013]. Consequently, the development of agriculture in every country in the world (both developed and underdeveloped) requires government assistance [Heisey, Wang, Fugile, 2011]. In recent years, agricultural output in other regions has been doubling, while Nigeria has experienced a significant decline in agricultural output [Knox, 2011; Curtis, 2013; Ishola, Olaleye, Ajayi, Femi, 2013]. Consequently, following the stunt growth in agricultural output in developing countries, low agricultural investments have been seen as a major contributory factor to this development [Mogues, Bingxin, Fan, McBride, ]. As such, government fiscal responsibility has always been seen as a fundamental stability, often viewed as prerequisite to achieving sustainable output growth [Ramaila, Mahlangu, Toit, 2011]. Hence, the potential contribution of agriculture to economic development in Nigeria have been marred by poor funding, coupled with misguided government policies [Alabi, 2014, Ewubare, Eyitope, 2015]. Agricultural sector in the 1960s contributed about 64 percent of the total gross domestic product (GDP) of Nigeria, but gradually declined to 48% in the 1970s during the oil boom [Ukeje, 2003]. Nigeria has diverse agro-ecological conditions that can support a variety of farming models, which can create its own agricultural models. However, successive administrations over the years neglected the agricultural sector in favour of the oil industry [Uger, 2013, Ebere & Osundina, ]. Public expenditure, which serves as the bed rock of financing for the sector has consistently fallen short of the public expectation [Lopez, 2004, Akroyd & Smith, 2007]. For instance, a collaborative study carried out by the International Food Policy and Research Institute (IFPRI) and the World Bank in 2008 revealed that Nigeria’s public expenditure on agriculture is less than 2percent of total federal annual budget expenditure. This is significantly below the expected amount or international standard compared to other developing countries like Kenya (6 percent), Brazil (18 percent) and 10 percent goal set by African Leaders Forum, under the Comprehensive Africa Agricultural Development gramme (CAADP) in the current decade. In spite of poor investment, agriculture has on the average contributed 32 percent of the country’s GDP from 1996 to 2000 and 42 percent between 2001 and 2009 (CBN, 2010). According to the Central Bank of Nigeria (CBN), in 2011 agriculture accounted for 40 percent of the nation’s GDP, yet it received only one per cent of the total commercial bank loans [Uger, 2013]. It is against this backdrop that this research work sets to examine the extent to which government spending influences agricultural output in Nigeria. By the time it is completed we shall be in a position to ascertain how much has been achieved in this regard.

1.2 STATEMENT OF THE

In spite of Nigeria’s rich agricultural resource endowment, there has been a gradual decline in agriculture’s contributions to the nation’s economy. The agricultural sector during the 1960s, accounted for over 70% of the total in Nigeria. According to Olajide, et al (), the agriculture sector fell to 40% in the 1970s, and got worse in the late 1990s by less than 2%. The sudden decline in the agricultural sector was largely due to the rise in crude oil revenue in the early 1970s. As a result of this, today, small scale farmers are constrained by lots of problems including poor infrastructure, poor access to modern inputs and credit, land and environmental degradation, inability to capture the financial service requirements of farmers and agric-business owners. Inadequate funding of the agricultural sector has been re-echoed by several experts as an obstacle to increased agricultural output (CBN, 2007; Bernard, 2009). However, from a nominal point of view, it is evident that in Nigeria, government spending on agriculture has continued to increase over the years while empirical evidence have revealed that the performance of the agricultural sector has been inadequate [Ekerete, 2013; CBN, 2007]. The agricultural sector in Nigeria which was the main stay of the economy is no longer performing the lead role it was known for. By mid 1970’s Nigeria’s agriculture started to experience problems, agricultural began to decline and food shortages started emerging. From 1975, emboldened by considerable increased revenue from petroleum, government assumed heavier responsibilities for agricultural production, input supply and marketing; in addition to adopting credit control and other allocative policies in favour of agriculture [Ojo and Balogun, 1991]. Agricultural production stagnated at less than 1 percent annual growth rate between 1970 and 1982. There was a sharp decline in export crop production, while food production increased only marginally. Thus, domestic food supply had to be augmented with large imports. Food import bill rose from a mere N113.88 million annually in 1970-1974 to N1,964 million in 1991 [CBN, 2007]. Since 1990 and until recently, Nigeria has been spending an average of 60 million USD on the importation of rice annually (Alkali, 1997). Indeed in 1994, the agricultural sector performed below the projected 7.2% of budgetary output [Lawal, 1997]. Theoretically, input-output theory in economics posits that input determines output. More so, Keynes postulated that increased government spending boosts economic growth. It is evident that the agricultural sector especially the small scale farmers constitute about 70% of the population in Nigeria, yet agricultural output has been very low due to government’s neglect in form of financial aid, and soft loan to boost agricultural output, which in turn has a negative effect on the Nigerian economy as a whole. In the case of Nigeria, there has been a conflicting view about spending on agriculture just as we can see from various scholars cited above. Therefore there is need to examine the extent to which government expenditure as an input has affected agricultural production as an output. It is in the light of this that this research was carried out to study federal government agricultural expenditure and agricultural output on Nigerian economic growth 1981 – .

1.3 AIMS AND OBJECTIVES OF THE STUDY

The major aim of the study is to examine federal government agricultural expenditure, agricultural output and economic growth in Nigeria.  Other specific objectives of the study include;

1.      To examine the amount of money spend on agricultural sector by government in Nigeria.

2.      To assess the level of agricultural output in Nigeria.

3.      To examine the impact of federal government agricultural expenditure on the contribution of agriculture to the GDP (output).

4.      To examine the ways agricultural sector enhance economic growth in Nigeria.

5.      To examine the relationship that exists between government expenditure on agriculture and economic growth in Nigeria.

6.      To highlight alternative procedures that can be taken to impure methods of enhancing agricultural output effectively.

1.4              RESEARCH QUESTIONS

1.      How is the spending on agricultural sector by government in Nigeria?

2.      What is the level of agricultural output in Nigeria?

3.      What is the impact of federal government agricultural expenditure on the contribution of agriculture to the GDP (output)?

4.      In what ways will agricultural sector enhance economic growth in Nigeria?

5.      What is the relationship that exists between government expenditure on agriculture and economic growth in Nigeria?

6.      What are the alternative procedures that can be taken to impure methods of enhancing agricultural output effectively?

1.5 RESEARCH HYPOTHESES

H0: There is no significant relationship between government expenditure, agricultural output and economic growth in Nigeria.

H1: There is a significant relationship between government expenditure, agricultural output and economic growth in Nigeria.

1.6 SIGNIFICANCE OF THE STUDY

The fundamental importance of this study is to examine the relationship or correlation that exists between government expenditure on agriculture and agricultural output on Nigerian economic growth. So far, little has been done to determine the important of agricultural sector on economic growth in Nigeria, but a number of studies have been carried out on cross country analysis of less developed countries. Most studies in this area consider only a small number of variables trying to establish agricultural growth. The basic significance of this study is that it employs econometric models with strong theoretical under pinning that relate agriculture and economic growth in Nigeria and that growing concern of the agricultural sector. It would be useful to explore this and come up with results that would help in the policy building of the Nigerian economy.

1.7 SCOPE OF STUDY

This study was designed to cover a period of 37 years (1981 – ). Data used in this study were obtained from the Central Bank of Nigeria stical Bulletin, CBN Annual Report and Statement of Account, Journal of Food Research and Federal Office of stics.

1.8              LIMITATION OF THE STUDY

Financial constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview)

Time constraint: The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

1.9              DEFINITION OF TERMS

Government Expenditure: It refers to the purchase of goods and services, which include public consumption and public investment, and transfer payments consisting of income transfers (pensions, social benefits) and capital transfer

Agriculture: The science, art, or practice of cultivating the soil, producing crops, and raising livestock and in varying degrees the preparation and marketing of the resulting products.

Agricultural output: is the main measure of individual crop and livestock output. It comprises: (a) Crop enterprise output, which is the total value of crops produced by the farm (other than losses in the field and in store).

: Economic growth is the increase in the inflation-adjusted market value of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP.

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