THE IMPACT OF AGRICULTURAL OUTPUT ON THE NIGERIAN ECONOMY

CHAPTER ONE

1.1     General introduction

One of the important objectives of macroeconomic policy in has been the rapid economic growth of an economy. Economic growth is defined as “the process whereby the real per capita income of a country over a long period of time.” Economic growth is measured by the increase in the amount of goods and services produced in a country. A growing economy produces more goods and services in each successive time period. Thus growth occurs when an economy’s productive capacity increases which in turn is used to produce more goods and services. In its wider aspect, economic growth implies raising the standard of living of the people and reducing Inequalities of income distribution. Economic growth is a desirable goal for a country. But there is no agreement over the annual growth rate which an economy should attain. (Jhingan, 2000).

Generally, economists believe in the possibility of continual growth .This belief is based on the presumption that innovations tend to increase productive technologies of both capital and labour over time. But there is every possibility that an economy may not grow despite technological innovations. Production might not increase further due to lack of demand which may retard the growth of the productive capacity of the economy. The economy may not grow further if there is no improvement in the quality of labour in keeping with the new technologies.

Economic growth is usually measured in terms of an increase in real gross national product (GNP) or gross domestic product (GDP) over time or by an increase in income per head over time. GDP measures increase in total output to a change in population. Thus, if total output rises higher as compared to population, then theirs an improvement in the average living standards. Growth is desirable because it enables the community to consume more private goods and services and the provision of a greater quantity of social goods and services such as health, education, etc. in this manner improving living standards. Government can also stimulate economic growth by increasing its current spending in the economy and through tax cuts (fiscal policy), and by increasing money supply and reducing interest rates (monetary policy).

            Principally, there are three main determinants of economic growth, which are; the growth of its labour force, the growth of capital stock, and technical progress.

Nigeria used to be heavily dependent on the agricultural sector prior to the oil boom. In the early 1950’s up to the early 1970’s before the discovery of crude oil, agriculture was the mainstay of the economy, employing 70 per cent of the total population. Although subsistence farming was predominant, it was a major revenue earner for the country. In the early 1980’s, it became more apparent that the agricultural sector could no longer perform its traditional role of meeting domestic food requirement, raw materials for industry and started to decline  as a  major foreign exchange earner through exports  due to economic , social and political problems.

Nigeria’s soils and climate allow cultivation of a wide variety of food crops, including cassava (of which Nigeria is the largest world producer), millet, sorghum and maize. Agriculture is Nigeria’s biggest employer of labour, accounting for about 60 per cent of the workforce, working mainly in small-holdings using basic tools. Together with livestock rising, it provides a third of gross domestic product.

 Growth in agricultural output averaged 3.5 per cent over 1993-1997, higher than the population growth rate, 4.0 per cent, 5.2 per cent, 2.9 per cent, 5.1 per cent from 1998-2000 respectively (CBN 2000). This compares with a period of stagnation in the first half of the 1980’s when growth averaged just 0.5 per cent, due to low producer prices, marketing restrictions and a drought. Agriculture picked up after the economic reforms introduced in 1986, which included trade liberalization, dissolution of price-fixing marketing boards and improved producer prices facilitated by devaluation of the naira. Growth in the sector averaged 3.8 per cent in 1986-92, and there was a burst of activity in the cash crop sector, with many farmers returning to previously abandoned fields. However, the renewed interest was not sustained, nor did it result in increased investment in cash crop production, mostly carried out by smallholders. Improved food crop production contributed to a sharp fall in food imports, from 19.3 per cent of total imports in 1983 to 7.1 per cent in 1991, although this crept back up to 13.1 per cent in 1996. Much of the increase in agricultural output in recent years has resulted from expansion of the area under cultivation, rather from increased productivity. The sector has been hampered by lack of investment in improved farming technology. Over-farming of fragile soil has worsened.

The share of agricultural products in total exports has plummeted from over 70 per cent in 1960 to less than 2 per cent today. The decline was largely due to the phenomenal rise of oil shipments, but also reflected the fall in the output of products like cocoa, palm oil, rubber and groundnuts, of which Nigeria was once a leading world producer. For example, production of cocoa, currently Nigeria’s biggest non-oil export earner, has remained around 160,000 tonnes per year since 1995, compared with an annual average of 400,000 tonnes at its peak before the oil boom. The government has made some effort to encourage private investment in agriculture and agro-industries by providing incentives, including tax breaks, finance credit and extension services, but without much success

1.2     Background of the study

This area of study is quite broad and as such various studies have been carried out in the area in general and other sub-sectors, highlighting the relevance of the sector towards economic growth. With the understanding been identified, many researchers, scholars have developed models on improving and developing the agricultural sector especially in developing countries. However the study will attempt to review available literatures within its reach.