CHAPTER
ONE
INTRODUCTION
1.1
BACKGROUND TO THE STUDY
In Nigeria today most
of the population lives in the rural areas, majority of whom are engaged in
agriculture, the mainstay of the rural economy. This percentage consists mainly
of poor, deprived, illiterate people whose income level is generally very low.
The United Nations Development Programme (UNDP) views the empowerment of the
poor as a key strategic approach to the abolition of poverty. It is worth
noting that one third of the world’s poor live in rural areas and depends
primarily on agriculture.
According to the
International Fund for Agricultural Development (IFAD), Official Development
Aid (ODA) to this sector has been steadily declining since 1988 and today, only
8 percent of this aid goes to rural development. The Food and Agricultural
Organization, FAO (2000), states that rural people need credit to allow
investment in their farms and small businesses. This is because lack of loan
(credit) has plagued poor farmers and rural dwellers for many years. Towards
this end the United Nations Organization (UNO) advocates the granting of loan
through BOA, particularly to the rural farmers. And to emphasize the importance
of Bank of Agriculture (BOA) to the rural populace, in 2000 to 2005 it declared
“International Year for Micro-loan”.
According to Mora (2008) the rural
economy in Nigeria is characterized by a vicious cycle of low productivity, low
income, low savings and low investments. He further stated that this vicious
cycle in the rural areas has been identified as one of the major factors
impeding rapid economic development. The importance of BOA in rural development
can, therefore, not be overemphasized as a farmer who wants to improve his
economic condition needs money for investment. Adetunji (2001) has also
described access to loan by over 45 percent of the population living below the
poverty line as a veritable tool for rural empowerment and poverty alleviation.
Bank of agriculture will help the cause of sustainable development of low
income people in a country like Nigeria where a large proportion of the
population depends largely on primary production (Aiyedun, 2005). As Poyi
(2005) puts it, the agricultural sector is the largest single contributor to
the GDP therefore, dwindling Statutory Allocation from the Federation Account,
it has become imperative to revamp the agricultural sector. But according to
Tarauni (2000), agricultural production is declining, because in 1964 the
contribution of agriculture to the GDP was 64 percent. Poyi (2005) stated
further that since over 70 percent of the populace is engaged in this sector in
one way or the other, it needs financial intermediation to further stimulate
its growth and development. Ijere (2008) had implied the same thing by saying
that BOA can be considered from its ability to energise or motivate other
factors of production, thus acting as a catalyst that activates the engine of
growth, enabling it to mobilize its inherent potentials and to advance in the
planned or expected direction.
Although sources of
loan in rural areas cover the Bank of Agriculture and Financial Institutions,
Credit Unions, Non-Governmental Organizations, Self-Help Groups and private
lenders, the fortunes of small-scale entrepreneurs within rural settings have
been constrained by (a) lack of poor accessibility to loan from formal lending
institutions, (b) exploitative lending conditions of local money lenders, (c)
widespread poverty occasioning low purchasing power and (d) unfavourable
macro-economic environment. Even the traditional loan delivery systems such as
the “Adashe” and the cooperative societies have been hamstrung by limited
funding and the inability to expand loan portfolios. This is despite the fact
that various policy measures have been instituted by government to boost
production capacities in agriculture and small-scale processing enterprises in
the rural communities.
The federal government
of Nigeria has since the 1970s embarked on substantial capital investment
programmes in agriculture. These programmes include the Agricultural
Development Projects (ADPs), Operation Feed the Nation (OFN) which was launched
in 1976, the Green Revolution programme inaugurated in 1980, and subsequently
the setting up of the Agricultural Credit Guarantee Scheme (ACGS) in 1978. The
Nigerian Agricultural and Cooperative Bank (NACB) was created in 1973, and in
2000 became Nigerian Agricultural, Cooperative and Rural Development Bank,
(NACRDB, after it was merged with Peoples’ Bank), and the Nigerian Agricultural
Insurance Company (NAIC) subsequently followed in 1993. In the late 1992 the
National Agricultural Land Development Authority (NALDA) was also created, all
in a bid to promote agricultural development.
Even International
Agencies such as the United State Agency for International Development (USAID)
have come in to contribute their own quota to agricultural development. Since
1999 this agency of the United States Government has provided substantial
assistance to, among other things, stimulate agricultural production in
Nigeria. During the year 2000, USAID negotiated an agreement with the federal
government to implement an expansive agricultural programme. Already, according
to USAID, farmer access to the agricultural technology targeted at the small
scale producers is improving. There are reports of the adoption of new
technologies among the target population; such as farmers producing maize,
millet, cassava, sorghum and cowpea. USAID believes that the continued adoption
of these new technologies will help increase production which will positively impact on farmers’ income.
However, despite these
efforts at improving agricultural production, Ojo (2001) puts it aptly when he
asked the question: Why has the agricultural sector performed so poorly despite
these huge government investment programmes in it? The answer might lie in Ojo
and Akanji’s (2001) assertion that these credit schemes, which have been articulated
by government as part of their contributions to agricultural development and
the commercial banks’ lending programmes, tend to sidetrack the small scale
farmer. However according to Kyari (2000), this could be attributed to the
complications of agricultural lending. He asserted that Nigerian banks have had
to be coerced, forced, begged and encouraged to lend to agriculture. This, he
said, is because agricultural finance offers less than the average return when
compared with other investment opportunities.
There is thus, the need
to critically examine the impact of Bank of Agriculture in financing small s
scale agricultural production with a view to highlighting areas of its
strengths and weaknesses and making recommendations that will go a long way
towards encouraging lending to the sector, since as we have observed, access to
loan is critical to lifting small scale farmers above the subsistence level.
1.2 STATEMENT OF THE PROBLEM
Agriculture plays a
critical role in the country’s economy. Since the oil boom of the mid 1970s,
however, agricultural production in the country has suffered a setback, due in
part to the lack of financial support for the small scale farmer. Improvement
of the economic condition of the farmer to be self-sufficient and self reliant
in food production is therefore necessary by providing support to them,
especially in the procurement of inputs (Edordu, 2002).
Successive governments
have come up with numerous programmes to address the inability of agricultural
output to keep pace with the country’s demand for agricultural products. Credit
institutions have over the years shied away from lending to the small-scale
farmers who form the larger part of the farming population, citing reasons such
as high default rates, difficulty in monitoring numerous individuals whose
loans do not provide much return on investment, as well as not being cost
effective. Here in Nigeria only a few empirical studies have been carried out
to quantify the impact of Bankk of Agriculture (BOA) has in stimulating
agricultural output and productivity in order to provide a sound basis for a
micro credit advocacy as a strategy for rural development. These include
studies by Idah (2000), Tarauni (2000) in Kano, and Aiyedun (2005) in Kwara
State.
This study sets out to
fill this important information gap, especially by comparing those who have
access to BOA loan with those who do not in arrears such as input use,
agricultural output and income. It is hoped that using those who have no access
to the loan as a control group in the study will show clearly whether loan
makes or does not make a difference to agricultural output among small scale
farmers.
1.3 OBJECTIVES OF THE STUDY
The general aim of the
study is to examine the Impact of Bank of Agriculture (BOA) in financing small
scale agriculture in Kaduna State (Makarfi Local Government Area) level, with a
view to making suggestions that would go towards the enhanced and sustained
provision of loan to small scale farmers. Specifically, the study pursued the
following objectives:-
1.
To quantify the impact of BOA on the
farmers’ farm size, input use and volume of output.
2.
To compare borrowing and
non-borrowing farmers with a view to determining differences, if any, in farm
size, levels of input use and volume of output between the two groups.
3.
To identify problems and constraints
to small scale farmers in the study area with regards to access to loan.
1.4
RESEARCH HYPOTHESIS/QUESTION
The following
hypotheses were drawn from the research questions of the study: -
H1.
Loan made available to the small-scale
farmers has no impact on their farm size, use of inputs and output levels.
2. Loan made available to the small-scale
farmers has significant impact on their farm size, use of inputs and output
levels.
3.
There is no difference in the farm
size and levels of inputs used between farmers who benefit from loan and those
who did not.
4.
There is no difference between
volume of output achieved between small scale farmers who benefited from credit
facilities and those who did not.
RESEARCH QUESTIONS
The research problem
can be reformulated into two broad research questions as follows:
1.
Does BOA loan to small-scale
farmers’ impact on their farm size, ability to purchase inputs and their
production level or output?
2.
When compared with the non-borrowing
farmers is there a marked difference in farm size, input use and production
level?
3. Is there any difference in the farm size
and level of inputs used between farmers who benefit from loan and those who
did not?
4. Is there deference between volume of
output achieved between small scale farmers who benefit credit facilities and
those who did not?
1.5 SIGNIFICANCE OF THE STUDY
As far back as the
1960s, Takes (1999), studying the impact of Bank of Agriculture on agricultural
production in Okigwe division of the then Eastern Region found that lack of
loan impeded farmers expansion of land holdings as well as agricultural
production in general. He observed that farmers that benefited from government
loans made considerable gains, though the amount per farmer and the number that
benefited was small. Jongur (2001) in a study to analyze the performance of
agricultural cooperative societies which had access to loan and
non-co-operators, in Gongola State made the following observations:
(i) Co-operators had significantly larger farm
sizes.
(ii) Co-operators used more labour
(iii)
Co-operators had significantly higher
farm incomes than non co-operators.
Findings on farmers’
elasticity’s of production by Tarauni (2000) showed that the fertilizer
variable was the only, and the most efficiently utilized resource among the
sampled farmers in the study area. The labour and land resources were found to
be under-utilized. Net farm income was found to be higher among the borrowers,
implying greater profitability among the borrowers than non-borrowers. Ilebanmi
(2000) in Ondo State concluded that (a) borrowers had larger farms and (b)
borrowers had higher operating expenses and investment per hectare. In Kwara
state, Mobayo (1999) studying the impact of BOA on small scale farmers’ income
in Oyi Local Government Area used regression models to compare borrowers and
non borrowers and found that the Bank had a positive impact on farmers’ income.
Idah (2000) also observed farm income to be positively correlated to loan.
Aiyedun’s (2005)
results showed that the farmers’ gross and net farm income were greater after
the implementation of the programme than before and the difference between the
two groups was significant. His results further showed that labour had the most
positive impact on crop output, both before and after implementation.
Other studies have however shown and
highlighted that certain other factors influence input use and productivity
apart from loan. Auchan (2004), analyzing the impact of institutional
agricultural loan on the farm size, output and adoption of new technology by
farmers in Funtua Local Government Area of Katsina State observed that apart
from being financed by Bank of Agriculture (BOA), farm input is influenced by
factors such as years of formal education, non-farm income, farm size, value of
assets and the gross farm income in the preceding year. Fabiyi and Ositimehin
(2005) studying the impact of BOA on rice production in Oyo and Ondo States
also observed that factors such as farm size, amount of loan and farming
experience influence farmers’ output. Idah (2000) also discovered in his own
study, that respondents’ socio-economic characteristics influenced their use of
bank loan where he observed that the older borrowers honoured their loan
obligations more than the younger ones, while the younger and more educated
farmers adopted more modern inputs. There is still the need for further
research in Bank of Agriculture Impact Studies.
Solomon O. (2014) in Kaduna State
Money was disbursed to small scale farmers and cooperative societies who have
fulfilled the conditions of the Bank of Agriculture that enabled them to access
the loan. Both the Bank of Agriculture and Kaduna State Government provided
N500Million each as counterpart and marching fund for the purpose of
encouraging small and medium scale Agriculture in the state. In selecting the
beneficiaries, a technical committee was set up by the State Ministry of
Agriculture which screened and cleared the beneficiaries before they could
access the loan. They were selected from the three senatorial zones of the
state. Each cooperative association has an average of ten 10 farmers and will
receive loans from N2.5million and above, while each individual beneficiary
(small scale farmer) would receive the sum of N250,000. It is noted that with
the dwindling Statutory Allocation from the Federation Account, it has become
imperative to revamp the agricultural sector. Solomon O. said, the loan would
assist the farmers in increasing their productivity and also create employment
opportunities in the drive to achieve food security and poverty alleviation in
the State.
According to International Fund for
Agricultural Development (IFAD) in 2000, the primary aim of Bank of Agriculture
is to the promotion of economic empowerment of Nigerians and the development of
Nigeria’s rural communities, by supporting Agriculture and Agro-allied, Small
and Medium-scale farmer/enterprises. In the process however there may be other
impacts such as schooling and family planning decisions. Tarauni (2000) had
also earlier stated that one thing that is lacking in impact of Bank of
Agriculture financing studies is research on farmers with the same type of
resource base. He opined that if non-borrowers with higher resource base are
sampled there would not be much difference in their input use and productivity,
which could lead to inconclusive results. This study is thus focusing on maize
farmers with the same resource base that is both borrowers and non borrowers.
The choice of farmers with the same resource base was informed by need to get a
clear picture of the actual impact of Bank of Agriculture in financing small
scale agriculture on the output of the farmers. It is believed that in
assessing farmers with different resource base, output may not necessarily be
affected by credit alone.
1.6 SCOPE OF THE STUDY
The study is limited to
Makarfi Local Government Area. Here, apart from the fact that the populace is
actively engaged in farming there are at least two financial institutions, the
Makarfi Community Bank and Keystone Bank Limited.
1.7 HISTORICAL BACKGROUND OF THE CASE STUDY
The study area is
Makarfi Local Government Area of Kaduna State. The state is bound by Niger,
Katsina, Kano, Nassarawa, Bauchi, Zamfara and Plateau states as well as the
Federal Capital Territory. Makarfi Local Government Area lies between latitude
70 251 E and longitude 110 0 N1 and covers an area of about 7,627.2 square
kilometres. It is located in the northern part of the state bordering Kano
state and Katsina states. It is also bound by kudan, Ikara and Soba Local
Government Areas.
Makarfi LGA is located
on a gently undulating plain that is part of the central Hausa plain of
Nigeria. The vegetation is northern Guinea savanna that consists of expansive
grassland interspersed with grown trees. The vegetation has been greatly
modified by human activities, especially farming. Virtually every piece of land
is cultivated. This area, just like other parts of the country has a distinct
dry and wet season. However, here the rainy season starts fully from around May
and lasts for about five months till around October. The only trees that abound
are the economic fruit trees that have been left to stand on farmlands. During
the rainy season the vegetation is lush green, but during the dry spell all
vegetation except the trees dies off. This is subsequently followed by a period
of dry, dusty cold weather called the Harmattan. After that sets in a very hot
period for about two to three months, until the commencement of the next rainy
season. The soil of the study area is loamy and fertile.
1.8 DEFINITION OF TERMS
Financing:- The act of providing fund for business activities, making purchases or
investing.
Agriculture:- Is the cultivation of animals, plants, fungi and other life forms for
food, fiber, biofuel, medicinal and other products used to sustain and enhance
human life.
Loan:- A loan is a debt provided by an entity
(organization or individual) to another entity at an interest rate, and
evidenced by a note which specifies, among other things, the principal amount,
interest rate and date of repayment.
Small Scale: Of limited size, scope or contents.
Inputs:
Materials
(fertilizer, tools, pesticides, herbicides, and seeds) used by respondents for
their farming activities during one production year.
Output:
Yield
derived from respondents’ farming activities in terms of number of bags (100kg)
harvested or the total number of units harvested from a specific field (or
simply the total production from a farm unit).
Income:
Revenue
generated from the sale of the produce harvested from a respondent’s farm unit.
Total
cost of production: Cost
of inputs as well as labour that go towards crop production in a farming
season.
Borrowers:
Farmers
who have obtained loans from banks or other institutions, between 2010 and 2015
for their farming activities.
Non-borrowers:
Farmers who have not
obtained loans from any source for their farming activities between 2010 and 2015.