IMPACT OF BANK CREDIT ON AGRICULTURAL OUTPUT

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IMPACT OF BANK CREDIT ON AGRICULTURAL OUTPUT

ABSTRACT

This research work examined the impact of Commercial Bank Credit on Agriculture and 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 agriculture and agricultural output in Nigeria. The specific objectives are: to determine the impact of commercial banks credit on agriculture and agricultural output in Nigeria, to determine the impact of interest rate, inflation and exchange rate on agriculture and agricultural output in Nigeria. The methodology adopted for the study was Ordinary Least Square (OLS). After the regression, the result shows that firstly: commercial bank credit and exchange rate has a positive significant effect on agriculture and agricultural output in Nigeria whereas; interest rate and the level of inflation have a negative effect on agricultural output, although they are both significant. Despite their individual signs and magnitudes, these variables all conform to economic theories. Secondly there is a general agreement that Nigeria agricultural sector is grossly underfunded. Finally, the share of actual expenditure, through commercial banks’ credit or central bank of Nigeria, 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 following suggestions: Government should take deliberate efforts to increase funding in agriculture to increase food production in the country; the government should intervene in the interest rate level in order for it to favour the common man in the country.

CHAPTER ONE

INTRODUCTION

Agriculture also called farming or husbandry is the rearing of animals and cultivation of land to produce food, biofuel and other products used to sustain life. Agriculture was the key in the rise of sedentary human civilization, whereby farming of domesticated species created food surpluses that nurtured the development of civilization. The study of agriculture is known as agricultural science. The history of agriculture dates back thousands of years, and its development has been driven and defined by greatly different climates, cultures, and technologies.

As confirmed by Ugochukwu (1999), 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) 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 consists of crop 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) posits that ―agriculture has been the main source of gainful employment from which Nigeria nation can feed its population, providing the nation‘s industries with local raw materials and as a reliable source of government revenue. Corroborating the above is Reynolds(1982) 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, 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 as major component of its gross domestic product (GDP). Olurosunsola (1996) 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), observed that 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 1970s, 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) 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 paid employment.

Nigeria‘s 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 requires only a little amount of money to practice unlike commercial farming that involves huge amount of money to operate. It does not require machinery or heavy equipment, since the land is very small and fragmented (Ameachi 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 machineries. These machines are used in cultivating crops. It involves a lot of capital and time, and also increases the farmer‘s income.

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