- Background of the Study
Monetary policy includes a number of policies by which a country controls its money stock so as to achieve macroeconomic goals. Monetary policy refers to the combination of measures designed to regulate the value, supply and cost of money in an economy. It can be described as the art of controlling the direction and movement of credit facilities in pursuance of stable price and economy growth in an economy (CBN, 1992). Monetary policy in the Nigerian context refers to the actions of the Central Bank of Nigeria to regulate the money supply which could be through discretional monetary policy instruments such as the open market operation (OMO), discount rate, reserve requirement, moral suasion, direct control of banking system credit, and direct regulation of interest rate (Iyoha, 2002). Agricultural financing also plays a fundamental role in determining access to the needed inputs that facilitates farming and other extensive agricultural practices which ultimately transforms into increased output while increased agricultural output establishes a forward linkage in terms of development to other sectors as well as higher income and better quality of life for the rural poor, (Hazell, 2005).
There exist relationship between monetary policy and other macro-economic variable, the objectives of monetary policy include price stability, full employment and economic growth, targets of monetary policy refer to the variables such as supply of money or bank credit, interest rates which are sought to be changed through the monetary policy instruments such as open market operation and selective credit control etc, so as to attain the laid out objectives (Ahuja, 2013).
Monetary policy thus becomes an indispensable and inevitable variable in any economy that it cuts across every sector, agricultural sector inclusive. The agricultural sector is seen as one of the major sectors in the economy and a key determinant of long run economic development in Nigeria with the sector contributing to development of an economy through production of goods, foreign exchange and exports. Prior to oil discovery in Nigeria, agriculture was the mainstay of the nation. However, with oil discovery and the oil boom of the 1970s, the sector suffered neglect with the sector’s contribution to GDP declining to 35% in 2014 from 65.7% in 1957 leading to food insecurity and increased level of poverty in the country with the poverty level standing at 33.1% in 2013 (NBS, 2014).
Due to the failing agricultural sector, the Nigerian government became directly involved in boosting the agricultural sector, with several large scale agricultural projects and programmes launched and established while concessionary interest rate structure was employed with direct cheap credit to agricultural sector. Despite these efforts of government in boosting the performance of the sector, the sector is still not witnessing significant development.
Monetary policy facilitates the establishment of agricultural businesses through availability of credit and finance for start-up, investments, and expansion. The CBN controls the availability of credit through monetary policy instruments. These instruments affect agricultural output through agricultural banks and other financial institutions. Therefore, it is imperative in this study to re-evaluate the concept of monetary policy and agricultural output.
- Statement Of The Problem
The fundamental problem of any government is it economic or otherwise its implementation. A number of government monetary policy instruments have been designed and applied in Nigeria in the hope of achieving the desired result of stable price level, low level of unemployment, efficient banking system etc.
The agricultural sector in Nigeria today has been characterized by low productivity. Recognizing this, the Nigerian government introduced series of macroeconomic programmes and policies (both monetary and fiscal policy) aimed at improving the sector performance. However, the share of agriculture contribution to GDP declined from 42.20% in 2007 to 40% in 2010 and to a more worsening rate of 35% in 2013 (CBN 2013).
Low agricultural output has a negative effect on the economy as a whole; there is a low production of goods for food and raw materials for industries. A major challenge facing Nigeria is the inability to capture the financial services requirements of farmers and agribusiness owners who constitute about 70 percent of the population. Farmers need access to capital to purchase land and equipment and to invest in the development of new products, services, production technologies and marketing strategies. Yet banks are often reluctant to lend money to farmers for agricultural enterprises due to the lack of creditability and collateral.
Therefore there is need for a research in order to effect necessary changes because activities of the monetary authorities through monetary policy affect the financial institutions and credit availability to the agricultural sector in no small measure this will further affect agricultural output positively.
- Research question
1. To what extent has monetary policy impacted on agricultural output in Nigeria?
2. What is the nature of the relationship between monetary policy and the agricultural output in Nigeria?
- Objectives of Study
The general objective is to empirical re-evaluate the impact of monetary policy on agricultural output in Nigeria for the period of 1980-2015. . Under this general objective, the specific objectives this study covers are;
1. To find out if there is a long-run relationship between monetary policy and agricultural output.
2.To determine the impact of monetary policy on agricultural output.
1.5 The statement of hypothesis
HAo: monetary policy has no significant impact on agricultural output.
HA1: monetary policy has significant impact on agricultural output.
HBo: there is no long-run relationship between monetary policy and agricultural output.
HB1: there is a long-run relationship between monetary policy and agricultural output.
1.6 Significance of Study
This research work is being carried out to empirical re-evaluate the overall impact of monetary policy on agricultural output. The findings of this work will be of immense use and benefit to government Ministries like Ministry of agriculture and Monetary Authorities (Central Bank of Nigeria), Department and Agencies at federal level in solving some macro-economic problems, state and local, policy makers and intellectual researchers who may be willing to improve the work subsequently. Lastly, it will educate the public on various government policies as related to monetary and agricultural issues.
1.7 Scope of Study
This research seeks to re-evaluate the impact of monetary policy on agricultural output in Nigeria. The study shall be carried out using secondary time series data, for a span of 36 years that is from 1980 to 2015 which is sufficient and suitable for conducting a research, making new findings and relevant recommendations.