Farming in Nigeria: The Economic importance of Agriculture for poverty reduction and improved development.

Article by

 Allison otobo,

 

 

 

 

Farming in Nigeria: The Economic importance of Agriculture for poverty reduction and improved development.

 

Introduction

The role of agriculture contribution to an economic growth has been an ongoing topic of controversy amongst most development economist. Agriculture plays an important role in promoting growth by stimulating economic growth, reducing the level of poverty and also creates employment for people in the developing world (Kida, 2011). Agriculture also has a very important role in the human community and humans depend on agriculture to survive. In the past years, Agriculture was seen as a passive partner with the industrial sector in the development process, it is now seen as an Active partner with the industrial sector in the development process. According to jerzy W. (2013), agricultural activities are set of activities that includes labour, land or soil, Animal rearing, plants, solar energy and so on. As early as adam smith (golin, 2010), economist have recognised the importance of structural transformation- the movement of workers and resources out of agriculture and into other sectors in the process to bring about production and bring economic growth. There is a debate about what happens as a country develop, there would be movement of labour and other resource from the lower productivity agriculture to the lower productivity manufacturing.

Agriculture is a key to achieving global poverty reduction targets and it’s still the most important productive sector in lowest income countries. Most Nigerian’s live in rural areas and depends majorly on the production of agriculture to survive. The sector provides about 40% of the country’s GDP and employs about 60% of the working population in the country (NWAFOR et al., 2011). The agricultural sector has the highest poverty incident and thereby tackling poverty will also include tackling agricultural underdevelopment. The Nigerian economic growth has hugely been considered to be flexible, it is associated sub-sector which includes the crops, livestock, fishery sector and forestry sector (EBOH et al., 2012).

Several studies in the past have stated the theoretical relationship between agriculture and economic growth and disagreement between the studies still exist. Some recent studies have argued about mixed or conflicting evidence and this make it hard to have a general agreement about the effect of agriculture on economic growth. Some researchers claim that agriculture is the backbone of industrialisation and economic growth, some other researchers strongly disclaim that agriculture is the backbone of economic growth and argue for a different path. Several academic commentators argue that growth overall depends on the production of agricultural sector in an economy (Schultz, 1964; Gollin, Parente, and Rogerson, 2002). These researchers claimed that the growth in the agricultural sector could be a driver for growth in the national level and from the effect it has on the rural area income and provision of resources and transformation into an industrialised economy (Eicher and Staatz, 1984; Dowrick and Gemmell, 1991; Datt, and Ravallion, 1998; Thirtle, Lin, and Piesse, 2003). Previous aim of developing countries trying to industrialise their economy without a previous development of the agricultural sector have resulted in a disappointing outcome which affect their economic growth rate negatively and very skewed income distribution (Bhagwati and Srinivasan, 1975).

However, sustained economic development cannot be achieved without growth of an economy.  The World Bank (2006) expressed that high poverty level will lead to low economic growth and low economic growth will lead to a high poverty level. This dissertation analyses how Agriculture can improve the economy of Nigeria and how it can also reduce the poverty level in the country. In here we will discuss why Nigeria is still a very poor country and they are blessed with abundant resources.

Purpose of this dissertation

This dissertation addresses ways in which agriculture can be used to tackle poverty and improve the Nigerian economy. This dissertation also discussed how investment in agriculture can reduce unemployment in Nigeria and reduce the rate of poverty. Investment in agriculture can help bring other sectors up and foreign investors would be attracted to be involve in the farming. Institutions are also ignored hugely in the country as most of the government officials are only interested in the natural resources Nigeria has, and this invites poverty to a community. This dissertation addresses two main research question.

The research question is:

1.      Why there is poverty in Nigeria even with majority of the population still involved in farming?

2.      Can farming be the key solution in improving the Nigerian economy?

To investigate the following research question, I put forward the following assumption which includes:

Hypothesis 1

Ho: there is no relationship between Agriculture and poverty

H1: there is a relationship between poverty and agriculture

Assumption 1: the key assumption in this question is that Agriculture and poverty does not have any relationship. The main issue is that agriculture is not used to make money in Nigeria and only few private people own farms and make money with the farms, and the others only involve in either a small scale business and the government now have neglected agriculture which has become a disadvantage to an economy and put their focus mainly on the income the oil brings the economy.

Hypothesis 2

Ho: farming can be the key solution in improving the Nigerian economy

H1: Farming cannot be the key solution in improving the Nigerian economy

The key assumption is that farming can be the key solution in improving the Nigerian economy. Resources have failed to improve the economy and failed to reduce poverty. Farming makes it possible for people to have jobs and it can help reduce poverty in a country. Nigeria is a country this is well populated and the only way to help satisfy the population is through farming and diversification.

THEORETICAL FRAMEWORK

Early theories

In the 1950’s the most common papers on the effect of resources and Agriculture on growth and reduction of poverty were without a doubt the ones of Prebisch (1950) and Singer (50), together the prebisch-singer hypothesis. They stated that over time the export of commodities will become relatively less important in regard to the export of manufactures. This proposition is based on Engel’s law; a one percent increase in income rises, the demand for manufactured goods increases more than the demand for commodities.

Institutions have proven to be an important part in the economic growth in the past. North (2005) notes how a country’s economic, political, legal, and social institutions impact its economic growth. According to moene, Mehlum and torvik for example have demonstrated using regression analysis that poverty and resource curse is strongly present in countries with weak institutions but hardly present in countries with stronger institution. The quality of institution also provides for a long lasting economic growth (rodrik, 1999).  For Agriculture and economic growth, theorist argued that corruption and weak governments are main factors that cause the poverty and this is because most of the developing countries focus more on natural resources which has a negative effect on a county’s economy (Neumayer and Dietz, 2005) and Agriculture and economic growth is a better approach in reducing poverty rather than natural resources. This dissertation implies that slow economic growth in Nigeria can be discussed in a framework of an institutional theory which can help improve Agriculture and reduce poverty.

Institutional theory consist of formal and informal constraints (Formal constraints consist of laws, rules, constitution and routine and informal constraints consist of behaviours, norms, and self-imposed code of conduct) and their enforcement characteristics (North, 1994 360). This study uses the values of institutional theory to identify, how well established government as well as the rules and regulation provided by the government can provide formal constraint (Demissie, 2014). Countries also need informal constraint like good social behaviour to build a quality institution.

Institutional theory falls under the category of new institutional economics, a field that incorporates the theory of institution into economics (Demissie, 2014). Scott (1995) said that there are three forms of institutions which are: cognitive, normative and regulative. Various carriers transport Institutions some of which are: culture, structure, and routine which function at various levels of jurisdiction (scott, 1995). On the table below are three pillars of institutions discussed by Scott.

Table 1

Theory element	regulative	Normative	Cognitive
Basis of compliance	experience	Social obligation	Taken for granted
Mechanisms	coercive	Normative	Mimetic
logic	Instrumentality	Appropriateness	Orthodoxy
Indicators	Rules, laws, sanction	certification, accreditation	Prevalence, isomorphism
Basis of legitimacy	Legally sanctioned	Morally governed	Culturally supported, conceptually correct.

Source: Scott (2001)

Scott stated that regulative elements points on setting rules and sanctions while normative accomplishes the obligatory roles. Cognitive elements are made through shared consumption and culturally supported ideas.

Unlike institutional theory, modernisation theory says that developing countries are best placed to experience economic growth and social development as they can import technology from well developed countries to help their own economy grow (Hall, 1992). The modernisation theory states that countries with a lot of various natural resources can develop faster by making use of these resources. However, the modernisation has been criticised as most resource rich countries have failed to develop even after adopting this theory. After the failure of the modernisation theory, dependency theory was established. According to dependency theory, underdeveloped nations that are rich in resources transfer these resources to wealthy developed nations making them benefit at the expense of resource rich but economically poor and underdeveloped countries (tausch, 2003).  In accordance with this theory, such countries underdeveloped countries with rich resources will rain poor as they try to integrate into the world’s system, they can be suppliers of resources and cheap labours and Agriculture to developed countries. The dependency theory has failed to bring development.

After the dependency theory failed to make a developmental impact the big push theory was introduced. Lewis (1955) noted that countries that are abundant with resources should increase Agricultural production and increase capital because of increased exports which aid economic growth. The big-push theory is based on the positive impacts of resource wealth in any resource-rich country. The big-push theory also did not make an impact in improving development and reducing the rate of hunger as it encourages more of corruption in a country, the rich people in the country gets richer and the poor get poorer as they don’t have jobs and the income that circulate in Nigeria which is a resource rich country only gets to the people managing the resources.

Figure 1: institution and natural resource curse theory

From the above diagram stated Institutions that are unhealthy and weak build political dysfunctions, and this will have direct or indirect impact on the economic growth of a country. Political dysfunction has a negative effect and this means they create macro-economic challenges and creates the existence of weak institutions. Political dysfunction also has negative impact on growth in an economy and they all feed each other from the diagram and create diminished economic growth.

After each theoretical review of how an economy can be improved, the institutional theory was still the best form of improving a country’s economy. And this is because a stronger institution can help increase other sector in a country which can help reverse the resource cause and improve agriculture.

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Literature review

A long standing question asked in economics is why some countries and richer and some countries are much poorer than others. According to (douglas gollin, 2002) reviewed an example from the past stating that the world richest countries in the world are about 35 times richer than the poorer countries and this is because the industrialisation process is much later and slower than the poorer countries. About 75% of people living in the rural part of the world depends heavily on farming, Agriculture must be part of economic growth, poverty reduction and environmental sustainability. http://ageconsearch.umn.edu/bitstream/195735/2/1_Oyinbo.pdf. Agriculture has a very important role in achieving reduction of global poverty and it’s still the most important productive sector in poorest countries, often in terms of it share and of GDP and the number of people it employs.  In the past development economist have been researching on how agriculture can contribute to the overall economy in a country and improve development.    Todaro and smith (2003) reviewed the lewis theory of development and it was reported that the underdeveloped economy is made up with just two main sectors which contributes to the economy which is the traditional agricultural sector characterised with zero marginal labour and modern industrial sector (Todaro, 2003). Rostow (1960) in his historical approach to the process of economic growth differentiated five stages of growth in an economy and they include; the traditional society, precondition to take-off, Take-off, drive to maturity and age of high mass-consumption. Rostow (1960) claimed that the take off stage is the ‘great watershed’ in life of a society when growth becomes its normal condition. Forces of modernisation contend against habit and institution. The value and the interest of the traditional community make a key improvement and a compound interest gets built into the society structure. From rostow’s historical approach, it has been identified that the agricultural sectors plays a vital sector in the first three stages of approach. The agricultural sector has the potential as the backbone of the industrial and economic sector in which countries can take-off. And indeed there is more concentration of farming in the rural areas.The relationship between agriculture and economic growth has been a topic of discussion between most academic commentators (JOHNSTON and MELLOR, 1961; THORBECKE and JUNG, 1996; DATT and RAVALLION, 1998; IRZ et al., 2001; GOLLIN et al., 2002; TIMMER, 2002; THIRTLE et al., 2003; TIFFIN and IRZ, 2006; SANDRI et al., 2007; WORLD BANK, 2008). The growth of agricultural sector could be a main source of income for the national level, with the effects it has on rural areas and the provision of resources for transformation into industrialised economy. Many early economist analysts like (Rosenstein-Rodan, 1943; Lewis, 1954; Scitovsky, 1954; Hirschman, 1958; Jorgenson, 1961; Fei and Ranis, 1961) referred to agriculture as a very important source of income because of its abundance of resources and its ability to transfer surpluses to other sectors like the industrial sector. The agricultural sector can serve every other sector in the Nigerian economy which is very beneficial to development in the country. According to Johnson and mellor (1961) noted that agriculture contributes to an economy and development through five different ways. The first aspect agriculture contribute is through the supply of surplus labour to firm in the industrial sector and second aspect is through the supply of food for domestic consumption, the third aspect is through the provision of market for industrial outcome, the fourth aspect is the supply of domestic savings and industrial finance import of intermediate. Agriculture alone can feed a country and become a main source of the country’s income because the sector is very large as it can employ a large scale of population and the raw materials from the agricultural sector can be used for industrial purposes.

The agricultural sector has been the main source of Nigeria’s economic growth since the independence and remains the resilient sustainer of the people in the 1960’s. The sub-sectors of agriculture in Nigeria have potential that gives opportunity for growth. According to the central bank of Nigeria (2012), they noted that between the period of 1960 and 2011, an average of 83.5% of agriculture GDP was been contributed by the crop production sectors making it the key source of growth in the agricultural sectors. The role of food production is sustained by the agricultural sub-sector as all the staples consumed in the country are from the crop production sector. Nigeria was the world largest exporter of groundnut in the 1960’s, the second largest exporter of cocoa also and palm produce and also a major exporter of rubber and cotton (sekunmade, 2009) and more recently two-third of the country’s citizens are been employed by the agricultural sector and this sector contributes well to the gdp and provides large proportion of non-oil earnings (CIA, 2013).

Agriculture has a stronghold in a country both economically and the lives of people living in any country and without agriculture a country will depend on foreign countries to survive and feed its population. Nigeria originally was a country that majorly focused on the success of agriculture in the 1970’s before they moved there focus from agriculture to oil.  Most of the Nigerian citizens lived and worked in the rural areas where farming is mostly practiced. About 75% of the citizens are based in the rural areas and 25% in the urban areas. Approximately about 70% of Nigerian citizens are engaged in agricultural production at a subsistence level. The sector provided about 41% of the Nigerian GDP in 1999. The wide range of climate variation in Nigeria allow the country to produce different variety of cash crops. The staple food crops include cassava, yams, corn, coco-yams, cow-peas, beans, sweet potatoes, millets, plantains, banana, rice, sorghum, and a variety of fruit and vegetables (http://www.nationsencyclopedia.com/economies/Africa/Nigeria-AGRICULTURE.html). The cash crops in the country includes cocoa, citrus, cotton, groundnut, palm oil, palm kernel, benniseed, and rubber. The cash crops and the food crops where Nigeria’s major exports in the 1960’s and early 1970’s until the oil industry became their major export and source of income. About 31 million hectares of land area is under cultivation of the land and the diverse climate makes production variety of products from, from tropical and semitropical areas of the world possible (Chauvin, Mulangu and Porto, 2012). Also livestock farming was also a large part of Nigeria income, in the northern part of Nigeria where there are lots of cows which are been exported to the south. Livestock are important to the Nigerian economy. The livestock sector is the second largest sub-sector agricultural sector in the country which contributed about 9.2% between the period of 1960 to 2011. The sector’s largest source of animal protein includes dairy and poultry products. The sub-sector also has a vital role in improving the country’s economy and the economic importance of the sector is that it can create jobs involving a huge number of workers needed to help the sector grow, and also important through provision of food and creation of income. The subsector has had a very huge decline in its contribution to the country’s economic growth. Ojiako and olayode (2008) noted that between the period of 1983 and 1984 the share of livestock in the agricultural sector GDP was about 19% which reduced drastically to 6% between the period of 2004 and 2005. In the fishery sub-sector, the local production is inadequate for the domestic demand consumption in the country. Nigeria import about 700,000mt of fish into the country annually which is about 60,000mt more than the domestic production http://www.aaawe.org/wp-content/uploads/2015/01/Tolulope_paper_mod.pdf. The sector has recorded the highest average growth rate of 10.3% (1961-2011) compared to the 6% recorded in crop production in the same period (CBN, 2012). With an average contribution of 4.3% to total agriculture GDP between 1960 and 2011 and provision of at least 50% animal protein, fisheries contributes to economic growth by enhancing food security and improving livelihood of fish farmers and their households (Gabriel et al., 2007; Essien & Effiong, 2010). Forestry is the smallest sub-sector in Nigerian agriculture contributing only 3.0% (between 1960 & 2011); however, the subsector plays a major role in providing industrial raw materials (timber), providing incomes as well as preserving biodiversity.

Figure 2

A pie chart showing the share of GDP in the Nigerian economy with the exception of the oil sector. Agriculture having about 20.9% of the country’s economy which is the second largest sector after the oil sector in the Nigerian economy.

The Agriculture sector has been the most important sector in the country since independence and the sector has several other subsector that can drive an economy and improve development. Land, labour, water and it is large in its internal markets. It has been estimated that about 84 million hectares of land area has potential for farming and only about 40% of the land is used for farming (FMARD, 2012). The productivity in the cultivated land is also low due to small farm holdings and local methods they use in farming. Nigeria is now very much dependent in import of food.

The resource curse in Nigeria

Nigeria is a rich country blessed with abundant natural resources but yet most of the citizens in the country still suffers and live at a very low level in the country and the performance of the country’s economy is far below expectation despite the abundant resources they have. Nigeria is the most populous nation in Africa, with a population of over 180 million people and up to 60 million labour force (2012 estimates; CIA, 2012). The country is blessed with so many labour resources to fuel its economic growth. And also beside been the largest oil producers in Africa, the country is also ranked 6^th largest gas producer globally and has the 8^th largest oil reserve in the world. With this resource abundance in the country the country still perform badly comparing to other global economy and most of the population are poor and this is due to lack of good institution, and weak governance in the country.

The resource sector in the country have been a curse in the country which is now the resource curse theory. The resource curse theory involves countries with plenty of natural resources, but yet they are still ruined by poverty. Nigeria is blessed with series of natural resources but yet they suffer heavily due to high corruption, weak government and weak institutional quality. The country has a very high rate of poverty and suffering even with the higher GDP they purchase and most of the citizens still live below $1 per day there is a very low life expectancy of just 53 years of age and the rich people in Nigeria gets richer because they are being puppet to the oil companies that pays them and exploit the country’s resources and most of the poor people live in the area where the resources are located and they can’t even get access to the resources and this companies have soldiers guarding them that harass and beat locals living in that area. The existence of abundant natural resources in the country have increase the level of corruption, conflicts and wars. Groups like the Niger delta avengers which is the new group from the Niger delta the southern region of Nigeria, and the boko haram which is a very brutal terrorist group from the northern part of Nigeria. The Niger delta avengers blows up the pipe lines in the country and presently they have blown up about 26 oil pipe lines and this has affected the country’s economy very badly. The Niger delta avengers group feels they are not treated really well in their region and they produce most of the Nigeria which is about 80 percent of Nigeria’s GDP, and the companies that are operating in those region are not claiming that they are accountable for the spillages they cause and the Nigerian government is not holding them accountable because the companies bribe the government officials. so this group is responding by destroying oil pipelines. Also the value of the Nigerian currency is very unstable due to their focus on one sector, it drops and only comes up when there is trade in the international communities and when the international communities demand hugely for the oil then the currency value comes up.

Poverty and Agriculture

Despite the opportunities in Nigeria and the potential it has in grow and development, agriculture still remains a poor sector in Nigeria and underdeveloped. The sector continues to rely on its local method to sustain a growing population without efforts to add value. The state of the sector has been blamed because of the existence of the oil sector which contributes negative impact on the economy. In 1960’s, oil production accounted to about 0.6% of the county’s GDP and the agricultural production was about 67%.  However by 1974, the share of oil production increased to about 45.5 % almost doubling that of agriculture which decreased to 23.4 (yakub,2008)

Although up to 70% or more of Nigerians live in rural areas and they depend on agriculture to survive, and still more than half of the citizens are still living in absolute poverty. So many Authors have argued if agriculture can really improve development. Some authors believe that fighting against poverty involves fighting Agricultural poverty. There is a common believe that agriculture plays an important role in the economic development and poverty reduction (cuong, 2010). For example in countries where agriculture is mainly practiced are richer than countries and also have lower poverty rate than countries that depends on only one sector to increase the GDP like Nigeria. Growth in an economy is an essential need for poverty reduction and this does not always lead to a fast reduction of poverty, and two frameworks can be used to explain this (NWAFOR et al., 2011). In the first framework, a country grows at a rate of 5% every year and thereby reduces poverty rates by 50% after 5 years and in another case same country also grows it economy at a rate of 5% per year but reduces its poverty rates by 10 % in 5 years. This means that the growth in the first framework is said to be more pro-poor because it is able to reduce poverty rate. in the case of Nigeria for example, when there is a 5% of growth in the economy which comes from the oil sector, it will have a less impact on poverty reduction and comparing this case to where there is a 5% of growth in the agricultural sector which will have more impact on the reduction of poverty. This is because agriculture employs a large labour force who can benefit from its growth. However, when there is an economic growth where most citizens are involved in then there would be poverty reduction.

Agriculture contribution to reduction of poverty and improve development is thought to be small because its relative economic importance reduces when low income countries have developed successfully and this view is misleading (DFID). A strong growth in the agriculture will improve productivity and improve a country’s economy and it has been a feature of countries that have talked the problem of poverty successfully.

Poverty in Nigeria

Nigeria itself is a rich country because of the resources the country possesses but the citizens in the country are very poor.  According to http://www.bbc.co.uk/news/world-africa-17015873  the level of poverty has increased, about 61% of Nigerians are living below $1 per day which is about 100 million Nigerians out of 180 million citizens. The national bureau of statistics said 60.9% of Nigerians in 2010 were living in abject poverty and this figure has risen from 54.7% in 2004 and it was predicted by the National bureau that the rising trend is likely to continue in the country. The bureau also stated in the report that unemployment rate in Nigeria is very high which is about 12.1%, the underemployment rate is 19.1% and youth unemployment rate is about 42.24%, which is a very high statistic of unemployment and poverty level is been increased in the country. The oil sector in Nigeria accounts for about 71% of the Nigeria’s GDP.  In 2012 The National bureau statistics stated that poverty was common most in the northern part of Nigeria with sokoto recording about 86.6% of the inhabitants were poor which has the lowest rate of poverty in the country and in the northwest poverty rate was recorded to about 77.7% and the North east of the country recorded about 76.3% then the south west in the country recorded about 59.1%.  in 2010 a survey was taken place in Nigeria by BBC Africa. This survey was to ask Nigerians how poor they feel and about 93.9% of the respondent considered themselves poor and in earlier years about 75.5% considered themselves poor. There are very limited jobs in the country for the population, so many graduates in the country looking for jobs and due to lack of jobs, they become violent and rob other people in the country. Agriculture has been crowded out in Nigeria due to weak and corrupt government relying more on the provision of crude oil which now provides over 70% of the country’s GDP.