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JOURNAL OF RESEARCH IN NATIONAL DEVELOPMENT VOLUME 7 NO 1, JUNE, 2009

THE IMPACT OF AGRICULTURE AND AGRO-BASED INDUSTRIES ON ECONOMIC DEVELOPMENT IN NIGERIA: AN ECONOMETRIC ASSESSMENT

 

S. G. Edoumiekumo and N. P. Audu

Department of Economics, Niger Delta University, Wilberforce Island

 

Abstract

The paper examined the impact of agriculture and agro-based industries on economic development in Nigeria. The Ordinary Least Square regression method is used to analyse the data. The results indicated that a positive cause and effect relationship exist between gross domestic product (GDP), agricultural output and industrial output. Agriculture and the agro-based industries contributed 5.6 and 34.1 percent

o gross domestic product (GDP) between 1985 and 2005 respectively. In order to improve agriculture and agro-based industry, public authorities should see that special incentives are given to farmers, encourage economic co-operation among regions and states, create markets for agricultural outputs, provide extension services to farmers and also provide adequate funding.

 

Keywords: Agriculture, Agro-based, Industries, Economic and Development.

  


 

Introduction

The role of agriculture and agro-based industries in Nigeria cannot be over emphasized. Agriculture is a source of food for consumption by man, foods for animals and raw material for the agro-based industries. Agriculture contributes to the growth of the economy and also provides employment opportunities for the teaming population and eradicates poverty in the economy. An articulated agricultural revolution and increased value addition activities in the downstream agro-processing sub-sector present a potential platform for effective wealth generation and consequently, sustainable poverty eradication.

 

Ukeje (2003) put it that before and immediately after independence in 1960, agriculture contributed up to 64% to the total GDP, but during the 1970s, the contribution of agriculture to the GDP decline to 48%. The decline continued in 1980 to 20% and 19% in 1985. The uncertainty associated with the oil glut of the 1980s, which has great negative impact on the Nigerian economy, resulted in increased Federal and State government attention toward the development of agriculture. However, during the 1990s, the contribution of agriculture to the GDP increased due to the shift of emphasis to agricultural development.

 

This study attempts to examine the impact of agriculture and the agro-based industries on the development of the Nigerian economy for the period 1985 to 2005.

 

Theoretical Issues

The physiocrats laid more emphasis on agriculture in the development of an economy. In their views, the development of an economy depends on the growth of the agricultural sector. The source of national wealth is essentially agriculture. The physiocrats believe that the fate of the economy is regulated by productivity in agriculture and its surplus is diffused throughout the system in a network of transactions. The agricultural sector to the physiocrats is the only genuinely productive sector of the economy and the generator of surplus upon which all depends. Todaro and Smith (2003), while looking at Lewis theory of development, assume that the underdeveloped economies consists of two sectors. These sectors are the traditional agricultural sector characterized by zero marginal labour productivity and the modern industrial sector. The primary focus of the model is the labour transfer and the growth of output and employment in the modern sector.

 

Tombofa (2004), states that the state of agriculture is of paramount importance to the development process. He pointed out that agriculture provides the basis for the world’s great civilization in the past and the increase in agricultural productivity in England laid the basis for, and sustained the first industrial revolution. The agricultural sector is known to employ over 75 percent of the labour force in developing countries and provide the purchasing power over industrial goods.

 

Rostow (1960) as cited in Tamuno (1996), argued that in the process of economic development, nations pass through several stages namely; traditional stage, the precondition for take off, the take off stage, drive to maturity and the high mass consumption stage. Agriculture played crucial roles in the first three stages.

 

Again, Todaro and Smith (2003) put it that if development is to take place and become self-sustaining, it will have to include the rural area in general and the agricultural sector in particular. “Traditionally, the role of agriculture in economic development has been as passive and supportive’’. Based on the historical experience of Western countries economic development was seen as requiring a rapid structural transformation of the economy focused on agricultural activities to a more complex modern industrial and

 

 

services society. As a result, agriculture’s primary role is to provide food and manpower to the expanding industrial economy.

 

 

Agriculture   and Economic Development in Nigeria

 

The National Accelerated Food Production Programme (NAFPP)

This programme was established in 1973 with the aim of distributing to those who involve themselves in packaging information and raw materials in order to improve the production of wheat, sorghum, millet, rice, maize and cassava.

 

The Nigerian Agriculture and Co-operative Bank (NACB)

The establishment of this bank owes to the fact that the agricultural sector lacked finance. The bank is charged with the responsibility of disbursing loans to agricultural projects. As a programme the bank faced some problems such as;

(a)                inadequate financial resources to meet with agriculture loan demand,

(b)               non-fulfillment of security or collateral requirements necessitated bad debt, which could not be recovered at the time of maturity,

(c)                lack of disposition of the bank to modern loan appraisal techniques which resulted in poor loan management,

(d)               diversion of fund by the bank for non-agricultural purposes, and

(e)                late disbursement of agricultural loan arising from bureaucratic impediment.

 

 


Operation Feed the Nation (OFN)

This programme was established in 1976 which was aimed at self-sufficiency in food and to ensure that the objective was realized. Some of the products of this programme include; subsidized supplies of fertilizers, seeds, insecticides and pesticides. Every one was encouraged by this programme to cultivate their back gardens intensively and to keep chickens, whose eggs and meat would provide an important source of protein and whose dropping could be used as fertilizer. However, the success of this programme was limited because about two-third of the entire funds were spent on student wages, living little for farmers. The programme also collapsed because of timing related inadequacies.

 

Agricultural Credit Guarantee Scheme Fund (ACGSF)

In 1979 the ACGSF was established by the Federal Government of Nigeria as an inducement to commercial and merchant banks to increase credit purveyance on their part to actively engage in agricultural lending. The Fund was under the management of the Agricultural Credit Scheme Fund Board with the CBN acting as managing agent for its day-to-day administration. It is worthy to note that though ACGSF had limitations, its operation improved significantly in 1994.

 

 

The River Basin Development Authorities (RBDA)

The RBDA were also established in 1978. The authorities were established to provide all year round water through irrigation to farmers. This period also witnessed the establishment of various other programmes such as the Grain Boards and the World Bank Assisted Agricultural Development Projects (ADP).

 

The Green Revolution (GR)

This programme was established at the wake of the third republic after the Operation Feed the Nation (OFN) in 1983. This programme was managed by the National Council for the Green Revolution. It was operated on green revolution principles that is, the use of high yielding varieties of seed, high inputs of fertilizers, irrigation, etc.

 

National Agricultural Land Development Authority (NALDA)

 


NALDA was established in 1990 for the purpose of making land available to those interested in farming. The Authority was intended to reduce the prevalence of subsistence agriculture in the country and in its place infuse large-scale commercial farming by assisting farmers with inputs and developing land for them to the point of planting at subsidized rates. On its establishment, the government allocated a take off grant of N30million in order to acquire 50,000 hectres of land in each state of the federation for agricultural activities.

 

Special Programme for Food Security (SPFS)

This programme was introduced in 2002 by the Federal Government and the Federal Ministry of Agriculture and Rural Development was given the responsibility of its implementation through its project coordinating unit. The size of the programme, the general capital outlay channeled to it and the built in implementation and monitoring mechanism made this programme a potent weapon for heralding a meaningful agrarian revolution in the country within the shortest period of time.

 

A critical look at the programme reveals that the success of this programme had been minimal because the government had failed to maintain consistency in its investment, implementation and monitoring the activities in the agricultural sector in general.

 

Contributions of Agriculture to Economic Development in Nigeria

Agriculture helps to provide food for the teeming population of the country. When output increases, the incomes of the farmers increase thereby leading to an increase in the standard of living.

Similarly, agricultural development is of vital importance due to the fact that a rise in rural purchasing power as a result of the increase in the agricultural surplus is a great stimulus to industrial development and expansion in the size of the market. The market size for manufactured goods in Nigeria is very small because a large proportion of the population is poverty ridden. However, the demand for such input like fertilizers, better tools, farm implements, tractors, irrigational facilities in the agricultural sector is relatively low which lead to the expansion of the industrial sector.

 

Again it is known that the LDCs in general and Nigeria in particular mostly specialized in the production of a few agricultural products for export.

 


Furthermore, agriculture creates employment opportunities in rural areas. As agricultural productivity and farm income increase, non-farm rural employment expands and diversifies.

 

Nigeria needs large amount of capital to finance the creation and expansion of infrastructure and for the development of basic and heavy industries. In the stage of development, capital can be provided to increase the marketable surplus from the rural sector without reducing consumption.

 

Finally, an increase in rural income as a result of the agricultural surplus tends to improve rural welfare. The rural people build better houses fitted with modern amenities like electricity, furniture, radio farm, etc. They also receive direct satisfaction from schools, health centres, irrigation, banking, transport, and communication facilities, which forestall rural-urban migration.

 

Data Collection and Analysis

This research work used secondary data. Data were sourced from Central Bank of Nigeria’s publications, journals, books and unpublished materials. The method of data analysis is the ordinary least square (OLS) multiple regression method. We made use of MICROFIT 4.1 (2001) econometric software.

 

Specification of the Model

Gross Domestic Product (GDP) is a function of agriculture and ago-based industries.

where;

GDP     =          Gross Domestic Product

AGRQ =          Agricultural output

INDQ   =          Industrial output

        =          Random term

, , and  are the parameter estimates

    a0 >0, a1 >0 and a2 >0

 

 

 

Estimation and Results

We used both linear and log linear specification of the model and discovered that the log linear specification explained the impact of the agricultural and industrial sector on gross domestic product in terms of goodness of fit, precision of the estimates of the slope and tolerable level of multicollinearity.

 

The results of the regression are presented in econometric compact form as:

 

The standard error values and t-values of each parameter are shown in parentheses, with the standard errors coming before the t-values.

 

The results of the regression show that there is a positive relationship between the dependent variable (GDP) and the independent variables (AGRQ and INDQ). A unit change in agricultural output and industrial output will cause 5.6 percent and 34.1 percent change in GDP respectively. The estimated model shows F-ratio of about 45.62 as compared with the F-table value of 3.55 with 5 percent level of significance. This implies that agricultural and industrial production for the period of analysis have  significant influences on macroeconomic output level.

 

The explanatory power of the regression model with an adjusted R2 of 0.82 is impressive. This indicates that 82 percent of GDP is explained by the agricultural and industrial sectors. The remaining 18 percent is explained by variables outside this model. From our results the standard errors for each parameters are statistically significant being that .

 

 

 

 

Conclusion

On the whole, the agricultural and industrial sectors contribute significantly to Nigeria’s GDP. The employment base of the Nigeria economy is largely dependent on these two sectors. However, the agricultural sector contributes only 5.6 percent to the economy while the industrial sector’s contribution is about 34 percent. This level of disparity is due to the neglect of agriculture when oil was discovered in a commercial quantity in the 1970s. It is well over due for the Nigerian economy to diversify. The negative perception and orientation of the average Nigerian about agriculture and agro-based industries should be disabused so that these sectors can contribute optimally to GDP.

 

Recommendation

In order to improve the agricultural and industrial sectors in Nigeria, the following should be considered.

·         Government should provide funds to acquire sophisticated farm tools.

·         Special incentives such as tax holidays should be given to those who engage in agriculture and agro-based industries.

·         The Export Promotion Council should create markets for the exportation of agro-based industry’s products and agricultural outputs.

·         Economic co-operation among regions and state should be encouraged. The benefit of such cooperation is the ability to pool resources together in order to embark on projects that are adjudged to be beyond individual’s states and regions. It also allowed the cooperative states to reap the benefit of economies of scale thereby improving the welfare of the people. The ultimate goal of the cooperating states should be to achieve accelerated rate of economic development and industrialization.

·         Extension programmes aimed at educating farmers and bringing to their knowledge modern production techniques should be faithfully pursued by the government.

 

 

 

 

 

 

References

Apere, T. O. (2004): Research Methodology for Management and Social      Sciences, Port Harcourt: P. N. Davidson Publication.     

 

Edoumiekumo, S. G. (2005): Fundamentals of Econometrics I, Port Harcourt, Nigeria: TowerGate

            Resources.

 

Iyoha M. A.and Itsede C. O. (2003): Nigerian Economic Structure, Growth and        Development, New Delhi Mindex House.

 

Rostow, W.W. (1960): The Stages of Economic Growth: A Non Communist Manifesto, London:  Cambridge University Press,.

 

Tamuno, S. O. (1996): Historical Dynamics of World Economies,  Owerri: Springfield Publishers..

 


Todaro, M. P. and Smith, S. C. (2003): Economic Development, Eight Edition,            Singapore: Pearson Education.

 

Tombofa, S. S. (2004):            Development Economics. An Introduction,  Port Harcourt: Pearl         Publishers.

 

Ukeje R. O. (2003): Macroeconomics: An Introduction,         Port Harcourt: Davidson Publications.

 


Appendix

 

Table 1:           GDP, Agricultural and Agro-based (industrial) Output

Year

GDP

AGRQ

INDQ

1985

253013.3

11720.80

65748.4

1986

257784.4

8720.600

72135.2

1987

255997.0

30360.60

69608

1988

275409.6

31192.80

78753.7

1989

295090.8

57971.20

80878

1990

472648.7

109886.1

84344.6

1991

328644.6

121535.4

87503.6

1992

337288.5

205611.7

89345.4

1993

342228.5

218770.1

90596.5

1994

345228.5

206059.2

92832.8

1995

352646.2

950661.4

96220.6

1996

367218.1

1309543.0

91216.2

1997

377830.8

1241663.0

104514

1998

388468.1

751856.7

108814.1

1999

393107.2

1188970.0

114570.8

2000

412332.0

1945723.0

117945.1

2001

431783.2

1867954.0

122522.4

2002

451785.7

1744178.0

127730.4

2003

495007.2

3087886.0

135992.9

2004

527376.0

4602782.0

215577.98

2005

562043.7

6372052.0

231184.01

 

Source: CBN Statistical Bulletin, Vol. 16, 2005