THE EFFECT OF GOVERNMENT EXPENDITURE ON NIGERIAN AGRICULTURAL SECTOR:1977-2006

Thesis Overview

<p><b>&nbsp;1.0 INTRODUCTION&nbsp;</b></p><p><b>1.1 BACKGROUND STUDY</b></p><p>The importance of the agricultural sector in any developing economy is generally well known. This is because it is expected to satisfy the bulk, if not the entire food requirement of the country, supply most of the agricultural raw materials needed by the manufacturing sector, provide adequate employment and income to farmers as well as earn substantial foreign exchange, for the execution of capital projects for developmental purposes. As such, government expenditure, which is a public sector investment, in agriculture is crucial for the transformation of the sector and realization of development policy objectives. Therefore public expenditure can be described to mean the cost or expenses the government incurs for its own maintenance and for the society, with expanding state activities. Agriculture as a sector is an instrumental factor for the development of the economy, as it sustains the livelihood of about 75 percent of the population, and according to World Bank estimates, increased at an annual rate of 2.9 percent in 1990-98 (Opportunities in Nigeria’s Agricultural Sector, 2005). Over the years, inadequacy of agricultural infrastructure has hindered progress in agricultural development. While the use of such devices such as modern diggers, ploughs (instead of hand hoes), and non-harmful chemicals for containment of weed, fertilizers, etc. are unaffordable by most of the smallscale farmers.&nbsp;</p><p> &nbsp;Therefore, government expenditure on agriculture especially in the area of development of infrastructure, such as irrigation, input distribution, construction of feeder roads, research and extension, are important. These investments have been left to the government, not just because of limited number of private investor willing to take part in the investment in the sector but due to the strong believer of the government that the availability of such infrastructure and improved technology will contribute immensely to the realization of the expected gains in productivity and output growth in the sector. Despite these, the performance of the sector has generally been considered unsatisfactory especially following the 1971-73 droughts and 1975 Rosette virus epidemic (Ukpong, 1993). The expected significant contribution was made towards the attainment of several national economic and social goals. The resultant effect is the huge importation of food, made possible by the enhanced crude oil export earnings, but which served as a disincentive to serious domestic farming. In line with the anticipated contribution agriculture makes to the overall development of the Nigerian economy, several measures were designed in the years preceding the Structural Adjustment Programme (SAP) to stimulate the growth and development of the sector. Such measures included subsidized/low interest rate policies of the 1970s and early 1980’s, establishment of specialized institutions to lend solely to the sector, funding agricultural production directly through budgetary allocation and by&nbsp; establishing agricultural oriented institutions and progammes such as Nigerian Agricultural Credit Bank (NACB), Agricultural Credit Guarantee Scheme Fund (ACGSF), Agricultural Development Programmes (ADPS), River Basin Development Scheme (RBDS) and Operation Feed the Nation(OFN). Following the adoption of SAP in 1986, Commodity Boards were abolished in order to provide productive incentives to the farmers through increased producer prices. Also, with the full compliant of the idea of SAP, that is expenditure reduction or withdrawal of government participation, government disengaged from direct investment in agricultural production.&nbsp;</p><p>The sector also witnessed changes in pricing policies and marketing institutions. All these are aimed at promoting competition and efficiency in the sector. The reason for policies of both prices liberalization and disinvestment is to modify the structure of financial allocation to the sector. Although, government had taken several measures to facilitate the flow of credit to agriculture, administrative delays often cause credit to reach many farmers after the planting seasons thus providing an opportunity for loan diversion to unproductive activities, leading to eventual poor repayment. It is not surprising therefore; that the problems of inefficient supply of agricultural inputs such as fertilizer, agricultural chemicals and improved seeds has continued to slow down the tempo of agricultural development. As such, total agricultural output as measured by aggregate index of production, declined in pre-SAP years. For example, high rates of total output&nbsp; declines recorded were -15.0, -6.1, -5.5, -0.2 and –1.5 per cent for the years 1975 to 1979. Production also dropped by –0.5 percentage points in each of the years 1982 and 1983(Ukpong, 1993). Also, in the period 1970-82 annual production of major export crops such as cocoa, rubber, cotton and groundnuts fell by 43, 29, 65, and 64 percent respectively (Olomola, 1998). While, the average growth rate is the value of agricultural exports increased astronomically in 1986 to 1990 sub-period by 70.5 percent due to initial impact of SAP. It remained a little lower but still high in the 1991/95 sub-periods by 68.5 percent, again due to the effect of SAP but became relatively low in the 1996/2000 at 18.2 percent as the effect of SAP wore off (Manyong, 2003).&nbsp;</p><p>Despite decade of public sector contribution to agriculture, there were evidences of unstable or fluctuating trends. In this research, efforts has been made to find out what is responsible for the downward trend in the contribution of agriculture to food supply, Gross Domestic Product (GDP), foreign exchange earnings and raw materials. Also, why there has been mixed result from the financing policies and programmes of government for agriculture in Nigeria.&nbsp;</p><p><b>1.2 STATEMENT OF RESEARCH PROBLEM&nbsp;</b></p><p>The Nigerian agricultural sector had traditionally been expected to fulfill such roles as providing food for the growing population, generate foreign exchange earnings, employ part of the labour force and provide income for the farming households.&nbsp; While the role of government public expenditure was to accommodate the expanding economic development or stimulate and induce expansion in the growth rate of the economy. This is because it is usually expressed in budgetary statement and has been a powerful tool for shaping the economy along growth path and to a considerable extent influences resources allocation in the private sector.&nbsp;</p><p>Therefore, government expenditure to Agriculture is the realization by government, of the numerous contributions a highly developed agricultural sector could make to the development of the Nigerian economy. But a successful attempt by the government to bring agriculture to its pre-oil boom glory could not be achieved. Some very critical factors that constrain agricultural output include: a. The Nigerian system of agriculture is based on numerous peasant farms. The peasant farmers, each working a tiny parcel of land with hand hoe and machete, are responsible for about 90 percent of all food production. Therefore, a major factor which undermines agricultural growth in Nigeria is the low level of application of modern farming technology, including inadequate cultivation of high yielding seeds and seedlings. b. Another factor, which was believed to constrain output, was low producer prices (set through administrative fiat by marketing boards) and it was a disincentive to the farmers. c. While another related factor is natural disasters such as droughts, floods, landslides, animal and plant diseases and pest, which rendered agricultural&nbsp; activities risky.&nbsp;</p><p>The drought of 1971-72 and floods in the north in 1992 were disastrous to hundreds of farmers. Diseases owing to insufficient availability and high cost of drugs and vaccines wiped out several poultry farms in the country. This results in food shortages, hence price increases which are counter by import at low price levels. It further promotes rural/urban migration. This explained the current state of the agricultural sector. In this situation, the research questions asked are-:&nbsp;</p><p>a. Since the output of the agricultural sector is believed to depend on government expenditure.</p><p>&nbsp;i Why then has the agricultural performance in Nigeria not taken a positive turn around?</p><p>&nbsp;ii Why has the allocated funds to small-scale farmers not made any significant change on the output of the sector?&nbsp;</p><p>b. How have the other factors affected the output of the sector?&nbsp;</p><p>1<b>.3 OBJECTIVES OF STUDY&nbsp;</b></p><p>It has become imperative to study government expenditure on agriculture in order to ascertain the extent to which its allocation to agriculture has contributed to its output, and the GDP of the Nigerian economy as a whole. The purpose of the research is to;&nbsp;</p><p>i. Determine the relationship between government expenditure on agriculture and the agricultural sector output.&nbsp;&nbsp;</p><p>ii. Examine the impact of government expenditure policy on agriculture, within the pre-SAP and with-SAP periods, so as to determine the effect of the structural change on its performance if any.</p><p>&nbsp;iii. To make policy recommendations.&nbsp;</p><p><b>1.4 JUSTIFICATION OF STUDY&nbsp;</b></p><p>The agricultural sector has the potential to provide employment opportunities, it has the potential to eliminate hunger, and provide alternative foreign exchange for the Nigerian economy. This study is necessitated by an attempt to analyze the effect of government agricultural expenditure on agricultural output. For decades peasant farmers have been flocking to urban to centers in search of employment opportunities with the government policies and programmes, many are realizing that farming offers better life By increasing the scope of the study, and also complimenting it by testing for the structural change, the study will be able to determine the effectiveness of the government public expenditure within the pre-SAP and with-SAP eras. .&nbsp;</p><p><b>1.5.1 HYPOTHESIS&nbsp;</b></p><p>Ho: E = 0 There is no relationship between government agricultural expenditure and agricultural sector output in Nigeria 8 H1: E  0 There is a relationship between government agricultural expenditure and agricultural sector output in Nigeria If we are to accept the null hypothesis that means Ho : E = 0, which means there is no relationship between the public expenditures and the agricultural sector output. The research has therefore proffered solution as to how government can make contribution to the development and progress of the sector, so as to achieve food security.&nbsp;</p><p><b>1.6 SCOPE AND LIMITATION</b>&nbsp;</p><p>The scope of this study is necessarily limited to the period 1977-2006; it was within this period that the Nigerian government initiated and executed the agricultural policies and programmes which were also due to the available resources derived from the crude oil and it also marked the period when the government withdrew its subsidy on the agricultural sector. It should therefore be acknowledged that the data used are derived from the Statistical Bulletin, National Office of Statistic, Journals, etc, and they are used to portray the significance or importance of government expenditure on agricultural output in Nigeria.&nbsp;</p><p><b>1.7 OUTLINE OF CHAPTERS</b>&nbsp;</p><p>Chapter one contains the introduction to the research study, the statement of research problem, justification of the research, objectives of the research, hypothesis, methodology, scope and limitation and the organization of research work.&nbsp;<br></p>