REVIEW OF RELATED AND RELEVANT LITERATURE
2.1 Introduction
One of the major challenges facing mankind is to provide an equitable standard of living, adequate food, clean water, safe shelter and energy, a healthy and secured environment, an educated public, and satisfying job for this and future generations. Of all these necessities, the first and most basic to human life and survival is enduring food security; which may be defined as a situation in which majority of the populace of a country have access to domestically produced food at affordable prices at all times (Akinboyo 2008). It is not an overstatement to assert that the growth and development of any nation depend, to a large extent, on the development of agriculture. The saying that “agriculture is the mainstay of the Nigerian economy may have become a cliché. It nevertheless underscores the emphasis placed on agriculture as the engine of growth in the Nigerian economy. Abayomi (1997) noted that stagnation in agriculture is the principal explanation for poor economic performance, while rising agricultural productivity has been the most important concomitant of successful industrialization. Generally, the sector contributes to the development of an economy in four major ways-product contribution, factor contribution, market contribution and foreign exchange contribution (Kuznetz 1961; Mackie 1964; Abayomi 1997; Abdullahi 2002; World Bank 2007). In realization of this, the government has embarked on various policies and programmes aimed at strengthening the sector in order to continue performing its roles, as well as measures for combating poverty. Notwithstanding the enviable position of the oil sector in the Nigerian economy over the past three decades, the agricultural sector is arguably the most important sector of the economy. Agriculture’s contribution to the Gross Domestic product (GDP) has remained stable at between 30 and 42 percent, and employs 65 per cent, of the labour force in Nigeria (Emeka 2007). It is estimated to be the largest contributor to non- oil foreign exchange earnings. This means that agriculture holds abundant potential for enhancing and sustaining the country’s foreign exchange.
2.2 Conceptual Review
Conceptually, agriculture is the production of food, feed, fiber and other goods by the systematic growing and harvesting of plants and animals. It is the science of making use of the land to raise plants and animals. It is the simplification of natures food webs and the rechanneling of energy for human planting and animal consumption (Akinboyo 2008). Until the exploitation of oil reserves began in the 1980s, Nigeria’s economy was largely dependent on agriculture. Nigeria’s wide range of climate variations allows it to produce a variety of food and cash crops. The stable food crops include cassava, yams corn, coco-yams, cow-peas, beans, sweet potato, Millet, plantains, bananas, rice, sorghum, and a variety of fruits and vegetables. The leading cash crops are cocoa, citrus, cotton, groundnut, (peanuts) palm oil, palm kernel, benniseed, and rubber. They were also Nigeria’s major exports in the 1960s and early 1970s. Chief among the export destinations for Nigerian agricultural exports are Britain, the United States, Canada, France, and Germany (Emeka 2007). Prior to the attainment of independent, agriculture was identified as a potential factor, capable of catapulting Nigeria’s economic development. The colonial administration in realizing this set up marketing boards for the major cash crops. Heilleiner (1966) stressed that export production accounted for about 57 percent of Nigeria’s Gross Domestic product (GDP) in 1929. The contributions of the sector to the GDP continued to increase. For example, agriculture became the leading sector of the economy in 1950s and 1960s. For these periods, agricultural output accounted for 63 and 54 percents of GDP (Aigbokhan 2001). However, with the advent of oil in the 1970s, this dropped to 33.2 percent. This marked an epoch in Nigeria’s economic history through the 1973/1974 (crude oil price shocks). It further went down to 30.2 percent for the period 1975-79. On annual average, its contribution to GDP form 1997-2006 is 4.1 percent (CBN 2006). Over the years, government has almost been the sole provider of financial and other capital resources to support agriculture. Government has attempted to increase her expenditure on agriculture through budgetary allocation and through the provision of cheap and readily available credit facilities (Nwosu 2004). Nwosu (1995) found that over the years, the government budgeting allocation has become an important determinant of agricultural output in Nigeria.
FAO (2008) reported that in terms of capital allocation to agriculture in Nigeria, it was an average of 4.74 percent from 1970-1980. But, from 1980-2000, it rose to 7.00 percent and 10 percent from 2001-2007, though revealing an increase, but still falls short of Food and Agricultural organization (FAO) recommendation that 25 percent of government capital budget be assigned to the agricultural development capital budget. Akpokodjie and Nwosu (1993) in their study stressed that government allocation to agriculture is relatively low and that actual expenditure falls short of budgeting expenditure and the rate of under spending is usually higher for agriculture than for other economic sectors. Omanukwue (2005) reported that a large proportion of the funds allocated to agriculture does not go directly to farmers. DFID (2005) reported that the largest category of private investors in Nigerian agriculture consists of the multitude of small holder farmers, scattered across the country. Thus, agricultural production in Nigeria is dominated by small-scale farms characterized by small, uneconomic and often fragmented holdings, the use of simple implements (hoes and knives) and unimproved planting and storage materials. The results have been a viscous web of low productivity, low income and low capital investment. Some government expenditure are in return for goods and services that account as part of recurrent output while some represent sacrifice for future benefit. From here the different types of expenditure will have to be identified, and they are subdivided into two;
A. Recurrent expenditure and,
B. Capital expenditure Recurrent Expenditure: are spending on running costs or for day-to-day running of government affairs such as payment of workers’ salaries/ remunerations, spending necessary to maintain existing levels of government services.
Capital Expenditure: on the other hand, are those that are capital stock augmenting that is, spending on the construction of feeder roads, irrigation, pipe borne water, etc .They represent project and sacrifices for future benefit. Government Agricultural Expenditure is part of public expenditure. Various attempts have been made, to provide theoretical explanation of public expenditure.
2.3 Theoretical Framework
The Wise-man Peacock Hypothesis: The Displacement Effect Theory. The Wiseman- Peacock Hypothesis was propounded in 1961 in the authors’ study of U.K. economy (1890-1955). They concluded that public expenditure did not increase in a smooth and continuous manner but in jerks or step-like fashion (Bhatia, 1985). It must be borne in mind that they were emphasizing the recurrence of abnormal situations of wars and depressions, which caused sizeable jumps in public expenditure and revenue. The reason according to Bhatia was that, as the economy advanced, the structural changes therein suggest regular and competent increments in revenue and public expenditure. Thus, public expenditure exhibits the tendency to grow on account of a systematic expansion of the public activities as also an increase in their intensity and quality. Martin and Lewis (1956), are of the opinion that the level of income is not a determining factor of a nation’s expenditure especially its basic expenditures, but rather, its prevailing conception of the role of the state in socio-economic development. Wagner’s Law of Expanding State Activity. Adolf Wagner (1835-1917), was a German economist who based his law of increasing state activities on historical fact. He opined that, there are 13 inherent tendencies for the activities of different layers of government (that is, central and state government) to increase both intensively and extensively (Bhatia, 1985). That is, there is a functional relationship between the growth of an economy and the growth of the government activities (expenditure). So that, the government sector, grows faster than the economy. The implication of the argument of Wagner is that growth in expenditure is derived from the growth in state activities. This is in itself the consequence of social progress of the society. This gives rise to the fact that Wagner’s law is really a law of increasing state activity to the extent that such increased activity is inevitable accompaniment of social progress. And only to that extent are increased expenditures inevitable. F.S. Nitti (1903), supported Wagner’s thesis and concluded with empirical evidence. He believed that the law was not only applicable to Germany but to various governments irrespective of their levels (that is, central or state), intentions (peace and war like) and size. Bird (1971), also supported Wagner’s idea, by observing that as per capita income increases, government spending as a proportion of aggregate output would increase. The income elasticity of aggregate output of public spending would exceed unity. Bird, specified the necessary conditions for the operation of the law.
- Rising per capita income
- Technological Institutional change; and
- Democratization of the polity
On the part of O. Teriba (1967), in his work on western Nigerian public expenditure (1949-1962), he made an observation that there are certain forces influencing public expenditure growth in that region. He further stressed that socio-political pressure, coupled with an era of financial buoyancy are the main explanatory factors in the rise of public expenditure in the region. In their study of public finance and economic transition, Barbone and PolacKova (1993), found that other factors such as population, educational level attainment, age structure and general economic conditions are important determinants of the level of government expenditures. While in the analysis of the secular growth of government expenditure in India (1872-1966) Reddy (1970), observed that the derivation of influences of population growth and price changes did not negate the common believe about expenditure, namely; that government expenditure increases at a faster rate than GNP. He found the income elasticity of demand for government expenditure to be far in excess of unity. He also found that the proportion of government expenditure in national income witnessed similar fluctuations in Japan, Germany and United Kingdom in the period 1890-1955. Olowononi (1978) stressed the role of increase in the state revenue due to transfers from federal government as very important when considering the basis for public expenditure, and that the rapid growth in public expenditure is associated with the government commitments to social, economic and administrative services.
He contended that as government involvement increased in providing social services such as public health, education, 15 agriculture, housing and community development in recent years, there is also increase in grants -in -aid to the government. Goffman and Mahar (1971), confirmed that there was positive relationship between income and the level and composition of public expenditures. Their findings supported the Wagnerian expectation, that “Pressure for social progress and the resulting changes in relative spheres of private and public economy” would give rise to increased need for law enforcement, state participation and material production and social services, such as education public health, subsidization of fertilizer, and so on. In post-revolutionary Mexico, Reynolds (1971), in his research work found that Mexico’s public expenditure policy has been successful in increasing the rate of capital formation and growth in both agriculture and industry. He found that fiscal restraint has been responsible for the impressive performance. He also found that the share of public expenditure in aggregate demand did not change importantly since 1940. Yet year-to-year fluctuations were considerable. Moreover, change in the composition of public expenditure probably had a net distributing impact on economic stability in Mexico owing to the differing influence of individual components of government spending on the private sector.
Finally, Tailor (1988), explained the role of government expenditure, by stating that if public spending and private spending are truly complementary, then government projects, and spending would induce entrepreneurs to enhance private investment, hence, ensuring growth in the economy.
2.4 Empirical Studies
Even though Wagner was not the first to originate the hypothesis concerning his law, he was the first to attempt to use empirical evidence to support it. Various studies have utilized a single independent variable in a regression equation to test the validity of the law, while others have included more than one independent variable. The studies have also varied in terms of the definition of variables, proxies used, choice of variables and techniques of estimation. These studies can be empirically reviewed as follows; Musgrave (1959), regressed nominal spending with gross domestic product (current prices or deflated by GDP deflator) as distinct from general postulation where it is expected that if the ratio of government expenditure to output (G/GDP) increases as the ratio of output to population (GDP/N) increase, the elasticity value for the relationship would exceed zero.
Gupta (1982), used the double logarithmic function fitted at different sub-periods, with per capita total government expenditure and Gross National Product (GNP) as dependent and independent variables, respectively to test, among others whether a social upheaval is associated with a change in the “income elasticity” of government expenditure, and if such a change was observed whether it was statistically significant. His conclusion was that significant change in income elasticity was associated with each major upheaval and no generalization could be made about the direction of change. The study by Hemning and Tussing (1974), used indirect least squares (ILS) to examine income elasticity estimate of demand for public expenditure 17 in U.S; and even though it showed some improvements by eliminating the bias associated with regression, it was still subject to simultaneous bias. Ganti and Kollori (1978), deviated from the ordinary least squares (OLS) and system estimation procedure and cast their model in the mold of Zellner’s (1970) reformulated errors-in-variable frame work, called regression models containing unobservable independent variable and derived, directly, efficient estimates of the gross private expenditure elasticity of government expenditure before deriving the income elasticity of government expenditures. They claimed their estimates showed improvement over ILS and concluded that there was evidence in favour of Wagner’s hypothesis. Abizadeh and Grey (1985), used panel data for 55 countries, divided into three groups according to their level of development, from 1963-79. Using 5 regressors, they upheld Wagner’s law for the wealthier groups, but not for the poorest ones. In recognition of the fact that no unique tests of Wagner exist, Henrekson (1913), tried to solve this problem by first looking at the stationarity of the variables used. In particular, he tested Wagner’s law using the interpretation that government civilian expenditure (GE) reflects better GDP per capita. Using Swedish data from 1861-1990, he concluded that the two variables are not co-integrated and thus, constant elasticity estimate could not be obtained from the relationship, and as such Wagner’s law was a spurious relationship. 18 The question here is, does Wagner’s law hold for a developing country like Nigeria? In the study of public expenditure on agriculture in less developed countries, FAO (1984) classified expenditure on agriculture as expenditure on development programmes, research and training, and concluded that there were two categories of public expenditure. They are current and capital expenditure, which are the main components of public expenditure. They used a cross sectional data to explain the behaviour of public expenditure on agriculture.
In his study of the patterns of current expenditures in Nigeria for the period 1950-1978, Omuruyi (1988), found out that total expenditure and the social and economic services’ functions are positively and significantly related to the level of economic development. The result and conclusion of his study was that per capita income variable alone is an inadequate proxy for economic development in relation to all the expenditure functions used in his study. The correlation between per capita income and some expenditure functions was poor, indicating that such functions need better proxies to relate them to development. Elias (1982), presents estimates of aggregate public expenditure in agriculture and its components for nine developing countries (Latin American States). He analyzed the trend and variability in the expenditures both in absolute terms and in comparison with the total government budget, the gross domestic and the value added of the agricultural sector. The production 19 function techniques were later used to evaluate the effects of government expenditures on agricultural output.
Also, Fan et al (2004), using a multi equations model, the marginal returns to different type of government spending in agricultural growth and poverty were estimated. The marginal impact and elasticity of different types of government subsidies and expenditures on agricultural growth and rural poverty were calculated for four decades for India. They provided evidence supporting the central hypothesis developed in their project for India. Their result rejected the alternative hypothesis that fertilizers and credit subsidies, for example, depressed agricultural growth and poverty reduction in the early stages of agricultural transformation. The results show generally high benefits from investment in roads, education, and agricultural R&D and credit subsidies. These findings demand a fundamental reassessment of policies espousing state withdrawal from markets in poor agrarian economies. Essien (1999), using three different interpretations of Wagner’s law, in an attempt to verify them and hence derive income elasticity, of government expenditure used a single equation, simple regression model. The test could not establish causality. The result confirmed the heuristic view that growth of government would be unlikely to cause growth of income, a view confirmed by co-integration result. He therefore concluded by saying, any policy of expanding government consumption expenditure based on growth in income, in the long run, would be misleading.
Selvaraj (1993), employ a neo-classical production function of the Cobb-Douglas in an attempt to determine the impact of government expenditure on agriculture and the performance of agricultural sector in India. The elasticity of the government expenditure on agriculture indicates 10.0 percent increase in government expenditure would induce 7.2 percent increase in agriculture production. The results clearly show that government expenditure policies are important determinants of the performance of the agricultural sector. Finally, Okene (2001), in his work on the impact of government budgetary expenditure on agricultural output in Nigeria adopted a single equation regression model to verify the relationship between agricultural output and policy instrument in Nigeria and he concluded that government expenditure on agricultural output is statistically significant. Thought funds allocated to the agricultural sector in the budget do not commensurate with the trend of expenditure in the economy. From the studies so far reviewed, most of them dwelt on aggregate expenditure and GDP. For instance, Gupta (1969) and Musgrave (1995), made use of aggregate expenditure and GDP.
While for some, the time series properties were investigated, for instance, Olomola (1998), Essein (1999) and Okene (2001). Some of the studies also used modern econometrics techniques of cointegration and error correction model and carried out the time series properties of the data. Most of the studies attempted getting the feedback mechanism for 21 co-integrated variable using error correction model. But from the forgoing, the challenge therefore is not to disaggregate both the expenditure and GDP variables, but to examine the relationship between public expenditure on agriculture and agricultural GDP (output) in Nigeria and to investigate the influence of public expenditure on agricultural output during the pre-SAP period and the with-SAP period by testing for the structural stability.
Trends in Agricultural Financing Generally, total credit to the agricultural sector showed increasing trend from 1990 to 2001. Total credit, which stood at N722.9 million in 1980, had increased to N6, 932.4 million by 1990 and to N50, 493.59 million by 2001. However, the annual growth rate of credit to the sector trended downwards. It rose from 21.9 percent in 1990 to a peak of 54.4 percent in 1993 and declined thereafter until 1998. In 1990, the public sector contributed 24.0 percent of the total credit while the private sector accounted for the balance of 76.0 percent. This trend continued until 1993 when the public sector accounted for about 28.0 percent of the total credit. Thereafter, the composition of total credit was reversed, with the share of the public sector declining to 18.0, 14.0, 32 7.0 and 3.0 percent in 1994, 1996, 1999 and 2000 respectively.
The declining trend was traceable largely to the non-mobilization of savings by the specialized credit institutions, coupled with the reduction in government subventions. Similarly, capital budgetary allocation to the sector, which stood at 11.5 percent of total capital expenditure in 1989, had declined to 6.7 percent by 1990. The downward trend continued to 2001.where the capital expenditure to agriculture as a percentage of the total stood at 1.3 percent.
The Agricultural Production Gap
In the 1990s, policy measures were initiated and strategies designed to propel agricultural development, targeting the year 2000 and beyond. The discussion of the output targets set and a detailed analysis of the level of achievement, so far, is presented below: i. The Crop Output Gap Food crop constitutes the largest component of the crop sub-sector of Nigeria’s agricultural sector. They are categorized broadly into cereals, pulses, roots, tubers and plantain, oil seeds and nuts, vegetables and fruits, sugar and beverages. The target date for self-sufficiency or, at least, self-reliance in respect of most food crop was set at 1992.It was expected that the target output set for various food crops would provide each Nigerian with at least 2,100 calories and 60grammes of protein per day.
To achieve the stated policy targets, commodities such as legumes, tubers, and fruits were expected to record annual growth rates of about 5 percent or more. Also, millet, sorghum, cassava and leafy vegetables were expected to record output growth rate of 6 to 33 8 percent, while maize, rice, wheat, soya beans, and sugarcane output, were expected to grow by over 10 percent annually. Analysis of Nigeria’s food crop production shows that, of the seven-food crop for which comparative data are available, only four exceeded stipulated target, while three recorded a negative variance between actual and projected output during the period 1990 and 2000. From the foregoing, it is clear that there was a short fall in food crop production between 1990 and1999. This implies that the self-reliance target was largely unmet during the period. Also, the estimated nutritional intake of Nigerians stood at 2000.5 kilo calories per output per day in 1995, compared to the 2100-kilo calories projected for 1992, and the 2450-kilo calories minimum requirement per day recommended by the Food and Agricultural Organization (FAO). Further analysis shows that staples that exhibited moderate growth in output as the production index of staples grew consistently from 1990 to 2001, recording an average growth of 5.8 percent during the period. This was slightly above the minimum growth target of 5.0 percent set for the various food crops in the policy document, but much below the upper target of 10.0 percent. All the staples exhibited consistent growth in output except cassava whose output fell in 1999, but grew from 2000. ii. The Livestock Output GAP For the purpose of planning for self-sufficiency in livestock production, output in the sector was categorized into short term, and long term. Livestock, whose sufficiency level could be conveniently attained within five years, were 34 classified as short term while those that would require at least 15 years were categorized as long term. Thus, the target years for the two classes of livestock products were set at 1992 and 2002 respectively. The demand and supply projection for the live stock sub-sector in the policy document were limited to five livestock products, namely: beef, poultry products, goat meat, mutton and pork. The five livestock products are categories under short-term (poultry meat, goat meat, mutton, pork, and beef). There were substantial negative variances between actual and projected output levels.
The agricultural production index shows that livestock output recorded a growth rate of 2.2 percent between 1990 and 2001, a much lower figure than the expected growth rate of 19.05% stipulated in the policy document for various livestock species. At the current level of production, the protein intake of Nigerians will continue to remain much below the stipulated minimum requirement. iii. The Fisheries Output Gap The target set for fish supply from domestic sources was 958,397 tonnes, with a growth rate of 7.05% annually. Even though, the level of fish supply has been on the increase between 1990 and 2000, it has consistently been much lower than the demand for it, hence the deficit recorded over the years. The deficit, which stood at 848.16 thousands tonnes in 1990, fluctuated upwards and peaked at 1,191.4 thousands tonnes in 1995 before declining to 403.0 thousand tonnes in 2000. However, this growth rate, which stands at 2.0 35 percent per annum, is too low to compensate for the substantial negative variance between actual and projected outputs, there-by, negating the objectives of self-sufficiency in fish production. Anticipated growth rate of this sub-sector has not been achieved, suggesting that the current production practices may not be capable of achieving the desired production targets.