REVIEW OF RELATED LITERATURE

2.1 INTRODUCTION

This chapter reviews the literature on the impact of agriculture on economic growth in Nigeria. It discusses issues arising from the topic of interest as viewed from different perspectives, with a view of giving a theoretical and empirical foundation to the study.

2.2 LITERATURE REVIEW

Todaro and Smith (2003), while looking at Lewis theory of development, assume that the underdeveloped economies consist of two sectors. These sectors are the traditional agricultural sector characterized by zero marginal labour productivity and the modern industrial sector. The primary focus of the model is the labour transfer and the growth of output and employment in the modern sector. Todaro and Smith (2003) argued further that, if development is to take place and become self-sustaining, it will have to include the rural area in general and the agricultural sector in particular. Rostow (1960) as cited in Oji-okoro (2011) argued that in the process of economic development, nations pass through several stages namely: traditional stage, the precondition for take-off, the take off stage, drive to maturity and the high mass consumption stage. Agriculture played crucial roles in the first three stages (Traditional society, pre-conditions for take-off and take-off stages). The agricultural sector has the potential to be the industrial and economic springboard from which a country‟s development can take off. Indeed, more often than not, agricultural activities are usually concentrated in the less- developed rural areas where there is a critical need for rural transformation, redistribution, poverty alleviation and socio-economic development. (Stewart, 2000 welcome Address “proceeding of the 7th World sugar Farmers Conference Durban) Tombofa (2004) reported that the state of agriculture is of paramount importance to the development process. He pointed out that agriculture provides the basis for the world’s great civilization in the past and the increase in agricultural productivity in England laid the basis for, and sustained the first industrial revolution. The agricultural sector is known to employ over 75 percent of the labour force in developing countries and provide the purchasing power over industrial goods The of Western countries experiences on economic development was seen as requiring a rapid structural transformation of the economy focused on agricultural activities to a more complex modern industrial and services society. As a result, agriculture’s primary role is to provide food and manpower to the expanding industrial economy. Agricultural Sector and Economic Growth in Nigeria: A Review of Empirical Literature In any economy, successful economic development depends on open balanced interaction between various sectors over a period of time, often the process of interaction is such that some sector becomes more important than others, depending on the level and the stage of development. In Nigeria, Agriculture is an example of one key sector whose role is, and would remain crucial to development fortunes.

Economic history is replete with ample evidence that agricultural revolution is a fundamental pre-condition for economic growth, especially in developing countries (Woolf and Jones, 1969; Oluwasanmi, 1966; Eicher and Witt, 1964). Iganiga and Unemhilin (2011) studied the effect of federal government agricultural expenditure and other determinants of agricultural output on the value of agricultural output in Nigeria. A Cobb Douglas Growth Model was specified that included commercial credits to agriculture, consumer price index, annual average rainfall, population growth rate, food importation and GDP growth rate. The study performed comprehensive analysis of data and estimated the Vector Error Correction model. Their results showed that federal government capital expenditure was found to be positively related to agricultural output. Oji-Okoro (2011) employed multiple regression analysis to examined the contribution of agricultural sector on the Nigerian economic development. They found that a positive relationship between Gross Domestic Product (GDP) vis a vis domestic saving, government expenditure on agriculture and foreign direct investment between the period of 1986-2007. It was also revealed in the study that 81% of the variation in GDP could be explained by Domestic Savings, Government Expenditure and Foreign Direct Investment. Using time series data, Lawal (2011) attempted to verify the amount of federal government expenditure on Agriculture in the thirty-year period 1979 – 2007. Significant statistical evidence obtained from the analysis showed that government spending does not follow a regular pattern and that the contribution of the agricultural sector to the GDP is in direct relationship with government funding to the sector. Ogwuma (1981), studied on public expenditure in Agricultural sector using econometric analysis. Based on his report, Agricultural financing in Nigeria shows positive relationship between interest rate and loananable funds on the level of Agricultural output. The strong correlation that has been established between Nigerian’s total GDP and the agriculture suggests that the prospects of the non-oil sub-sector and the overall economy are closely tied to the performance of the agricultural sector. Ukeji (2003) submits that in the 1960‟s, agriculture contributed up to 64% to the total GDP but gradually declined in the 70‟s to 48% and it continues in 1980 to 20% and 19% in 1985, this was as a result of oil glut of the 1980’s.

2.3 NIGERIA’S AGRICULTURE SECTOR

Originally an agriculture dependent country, Nigeria shifted focus to oil exports in the 1970s and decades of slow economic growth later; there is a need to refocus on agriculture. With the pressure to attain the MGDs, it is important to investigate the contribution of the sector to Nigeria's economic growth. Agriculture contributes 40% of the Gross Domestic Product (GDP) and employs about 70% of the working population in Nigeria (CIA, 2012). Agriculture is also the largest economic activity in the rural area where almost 50% of the population lives. Nigeria suffers from the resource curse4 (Aluko, 2004; Otaha, 2012). Given the enormous resource endowment both in human capital and natural resources, the performance of the economy has been far below expectation. The most populous nation in Africa, with a population of over 150million and a labour force of 53.83million (2012 estimates; CIA, 2012), Nigeria is blessed with ample source of labour to fuel economic growth. Besides being Africa’s largest producer of oil, Nigeria’s gas reserves ranks 6th globally and it has the 8th largest crude oil reserve in the world (Sanusi, 2010). About 31 million hectares of the land area is under cultivation and the diverse climate makes production of a variety of products, from tropical and semitropical areas of the world possible (Chauvin, Mulangu and Porto, 2012). Despite these endowments, the nation ranks among the world‟s poorest economies. The agriculture sector has been the mainstay of the economy since independence and despite several bottlenecks; it remains a resilient sustainer of the populace. In the 1960s, Nigeria was the world‟s largest exporter of groundnut, the second largest exporter of cocoa and palm produce and an important exporter of rubber, cotton (Sekunmade, 2009). More recently, agriculture employs about two-thirds of Nigeria‟s labour force, contributes significantly to the GDP and provides a large proportion of non-oil earnings (CIA, 2013, Sekunmade, 2009). The sector has several untapped potential for growth and development in the availability of land, water, labour and its large internal markets. It is estimated that about 84 million hectares of Nigeria‟s total land area has potential for agriculture; however, only about 40% of this is under cultivation (FMARD, 2012). Productivity in the cultivated lands is also low due to small farm holdings and primitive farming methods. Nigeria has therefore become heavily dependent on food imports. In addition to diverse and rich vegetation that can support heavy livestock population, it also has potential for irrigation with a surface and underground water of about 267.7 billion cubic meters and 57.9 billion cubic meters respectively (Chauvin, Mulangu and Porto, 2012; Lipton 2012). Nigeria‟s large and growing population provides a potential for a vibrant internal market for increased agricultural productivity. In spite of these opportunities, the state of agriculture in Nigeria remains poor and largely underdeveloped. The sector continues to rely on primitive methods to sustain a growing population without efforts to add value. This has reflected negatively on the productivity of the sector, its contributions to economic growth as well as its ability to perform its traditional role of food production among others. This state of the sector has been blamed on oil glut and its consequences on several occasions (Falola & Haton, 2008). In 1960, petroleum contributed 0.6% to GDP while agriculture’s contribution stood at 67%. However by 1974, shares of petroleum had increased to 45.5% almost doubling that of agriculture which had decreased to 23.4% (Yakub, 2008). It should be clarified that this pattern was not an outcome of increased productivity in the non-agricultural sectors as expected of the industrialization process (Christaensen & Demery, 2007); rather it was the result of low productivity due to negligence of the agriculture sector. Furthermore, the nation was self-sufficient in food production and exports of major crops accounted for over 70% of total exports in 1960. However, due to fall in local production among other things, importation of food began to increase and food items like bread made from imported wheat flour began to replace cheap staple foods. In 2012 alone, importation of wheat was valued at $1billion (Nzeka, 2013). Largely due to significant fall in the output of export products like cocoa, palm oil rubber and groundnuts, the share of agricultural products in total exports decreased to less than 2% in the 1990s (Olajide, Akinlabi & Tijani, 2012). The subsectors of the agriculture sector in Nigeria have potentials that give the sector opportunity for growth. According to CBN (2012), between 1960 and 2011, an average of 83.5% of agriculture GDP was contributed by the crops production subsector making it the key source of agriculture sector growth. The food production role of the agriculture sector depends largely on this subsector as all the staples consumed in the nation comes from crop production, 90% of which is accounted for by small-scale, subsistent farmers. The major crops cultivated include yam, cassava, sorghum, millet, rice, maize, beans, dried cowpea, groundnut, cocoyam and sweet potato. The second largest is the livestock subsector contributing an average of 9.2% between 1960 and 2011. This sector is the largest source of animal protein including dairy and poultry products. The economic importance of the subsector is therefore evident through food supply, job and income creation as well as provision of hide as raw material. Despite this, the sub-sector has been declining in its contribution to economic growth, according to Ojiako and Olayode (2008). Between 1983 and 1984, the share of livestock in agricultural GDP was about 19% but this dropped as low as 6% between 2004 and 2005. In the fishery subsector, local production is inadequate for domestic demand and consumption. Nigeria imports 700,000MT of fish annually which is 60,000 MT more than total domestic production (Ibru, 2005 in Essien & Effiong, 2010). However, the subsector 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. In these subsectors, productivity is low and contributions to the economy are below expectation. Among other constraints, low productivity has been identified as a major contribution to the declining growth rate in Nigerian agriculture sector. Iyoha and Oriakhi (2002) find that slow growth in capital per worker and not slow Total Factor Productivity (TFP) is responsible for slow growth in the agriculture sector. This was further explained to be due to inadequate capital investment and rapid growth of the population and labour force. Also, Muhammad-Lawal and Atte (2006) recommends increase in per-capita productivity through the introduction of improved technology in agricultural production. They also indicated a positive and consistent relationship between GDP growth rate, population growth rate, and the Consumer Price Index as factors affecting domestic agricultural production in Nigeria. However, it is estimated based on the prospects of the sector that by 2015, it is possible to provide 3.5 million jobs within the agriculture value chain, increase farmers‟ incomes by $2 billion and also reduce food insecurity by 20 million metric tons (MT) increase in food supply (FMARD, 2012). This can only be achieved by intensified efforts in increasing productivity and developing the agriculture value chain.

2.4 Agriculture Sector and Economic Growth

Several studies have focused on understanding the association between agriculture and economic growth, yet there is some disagreement. While some researchers have argued that agriculture should be the foundation of economic growth (Gollin, Parente & Rogerson, 2002; Thirtle, Lin & Piesse, 2003), others claim that the linkages agriculture has with other sectors are too weak and its innovative structures inadequate for promoting economic growth (Ranis and Fei, 1961; Jorgenson, 1961). However, the relationship between the agriculture sector and other sectors should not be a competition but rather be viewed as interdependent where supply and demand in sectors can be accommodated through strengthened linkages (Adelman, 1984; Sabry, 2009). For instance, industry is an important sector and every economy that strives for development should work toward strengthening its industries (Lewis, 1954). Nonetheless, the position of agriculture in the strive for industrialization should not be ignored as the case has been in Nigeria. As argued by advocates of agriculture-led growth (ALG), development of the agriculture sector is a prerequisite for industrialization through increase in rural incomes and provision of industrial raw materials, provision of a domestic market for industry and above all the release of resources to support the industry (Schultz, 1964; Timmer, 2004). Neglect of the agriculture sector in favour of the industrial sector will only lead to slow economic growth and inequality in income distribution. Therefore, despite the fact that agriculture may be unable to singlehandedly transform an economy, it is a necessary and sufficient condition in kick-starting industrialization in the early stages of development (Byerlee, Diao, & Jackson, 2005). The contributions of agriculture to economic growth can be examined through the roles of the sector in the economy. Johnston and Mellor (1961) summarized these roles in five inter-sectoral linkages; food, labour, market, domestic savings and foreign exchange. The most basic of these roles is, perhaps the supply of food for both domestic consumption and export. Direct contributions of food production can be through income generated from sales of farm produce and returns from economic activities related to production; or indirectly from increased capacity to partake in any form of economic activity through improved diet. Anyawu, Ibekwe and Adesope (2010) using correlation matrix find that production of major staples in Nigeria contributed significantly to GDP growth (except wheat) between 1990 and 2001. Also, as observed by Timmer (1995), the agriculture sector contributes to economic growth through provision of better caloric intake and food availability. The attainment of global food security and reduction of hunger hinges largely on this singular role. According to FAO (2005), agriculture can facilitate the attainment of all 8 MDGs through the direct or indirect linkages to food availability and poverty reduction. In 2008, UNDP reported that the 12.6% reduction recorded in the proportion of underweight children between 1990 and 2008 can be attributed largely to growth in the agriculture sector in Nigeria (UNDP, 2008). Furthermore, as population increases, failure to increase food supply in proportion to increased demand has negative effects on industrial profits, investment and economic growth (Johnston & Mellor, 1961). Hazell and Roell (1983) assert that in the early stages of development, rising incomes of rural/farming households is essential to providing market for domestically produced goods and services via strengthened purchasing power. The most direct contribution of agriculture to economic growth, according to Irz et al. (2001), is increase in incomes of farmers and therefore their purchasing power. Results of several studies, including Gallup et al. (1997), Irz et al. (2001) and Thirtle et al. (2001), show that an increase in agriculture growth results in an increase in the income level of the poorest of the population. Also results from cross-country regressions among developing countries show that $1 increase in GDP results in significantly more poverty reduction when the growth is in agriculture rather than other sectors (Lipton, 2012). This sectoral growth increases the incomes and therefore purchasing power of farmers resulting in a vibrant domestic market for other sectors, hence growth in the economy. An offshoot of income growth is increased domestic savings, both at micro and macro levels as observed in developed economies like Japan, Taiwan, South Korea, Hong Kong and recently, China (Harbaugh, 2004). Agriculture therefore contributes to economic growth by increasing the incomes of majority of the population thereby strengthening their saving capacity. Results from an IFPRI publication on Ethiopia‟s growth and transformation plan shows that increased domestic savings is imperative to the achievement of higher Total Productivity (GTP) (Engida et al., 2011). Using Tobit regression model on multi-stage data from Kwara state, Nigeria, Obayelu (2012) finds that domestic saving is low among rural dwellers/farmers in Nigeria. He highlights the effect of high expenditure on food, which is a consequence of low income due to low productivity, on saving capacities of the farming households in the study. This implies that domestic savings largely influences the growth path of the economy. The sector is also in a position of making surplus labour available to industries. As productivity in the agriculture sector increases, surplus labour and capital is created and diverted to investment in industrial sector resulting in economic growth (Ike, 1982). This facilitates the industrialization process and eventually the transformation of the economy as postulated by the structural development advocates (Awokuse, 2008). Having argued that economic growth in Nigeria depends to a large extent on growth in the agriculture sector, empirically investigating the sector‟s contributions to growth is important both to assess past efforts and justify future investment. Our empirical analysis in the next sections will be aimed at providing evidence on the sources of growth in the Nigerian economy. To further do justice to this, we will evaluate the agriculture sector by investigating the sources 11 of its growth and the subsectors that require further attention based on already highlighted potentials relative to their past contributions.

2.5 IMPACT OF AGRICULTURE ON ECONOMIC GROWTH IN NIGERIA.

Empirical evidences have pointed to the impact of agriculture on economic growth. A rise in agricultural productivity had a multiplier effect on the level of economic growth in Nigeria. A study conducted by Hayami and Ruthan (1985) revealed that agricultural productivity growth requires fostering the linkages between the agricultural and non- agricultural sectors.

The possibility of agriculture to contribute to economic growth was identified by Adelman (1984) who stated that the strong growth linkage effects of agricultural development can lead to a wider economic growth in many countries and allows for the evolution along the stages industrialization.

Hirschman (1958) was one of the theorists to emphasize linkage effect in the growth process although his analysis focused mainly on the backward and forward linkages created by investment in industrial sectors.

Godoy and Dewbree (2010) are also of the view that agricultural development plays a vital role in poverty reduction and economic transformation. Agricultural growth reduces poverty through direct impacts on farm incomes and employment while indirect impacts are through linkages. The importance of intersectional linkage in the growth process had already been widely recognized.

The impact of agriculture in the Nigerian economy could be discussed under the following thematic areas;

(a) Employment Creation

With the period under review (1980-2014) agricultural sector still provides employment population in the country. With employment, individuals get to contribute to the national output thereby stimulating economic growth. The labor force when categorized by sector, the service sector employs 32% of the labor force, Manufacturing 11% while agriculture employs 30% of the labor force in spite of inadequate attention placed on it (Wikipedia, 2014). Similarly, 11.5% of the labor force was employed in the industrial sector in 2005 compared to 44.6% of the labor force employed in the agricultural sector in that same year (UN data, 2014) world statistics pocket book, 2014 data.un.org/countryprofile.aspx).

(b) Foreign exchange

Despite the dominance of crude oil, agriculture continues to serve as a buffer to foreign exchange. The sector accounts for diverse items that can be traded with other countries and improve the country balance of trade. As Ismail (2014) puts it, agricultural sector ranks second; as Nigeria most important earner of foreign exchange after petroleum, and contributes about 38 percent (38%) to the Gross Domestic Product (GDP).

(c ) Gross Domestic Product.

Agriculture has made tangible impact on the growth of the country’s GDP in recent time. The National Planning Commission (2014) in its report asserted that agriculture as a sector contributed N348.7 billion to the Nigerian economy in 2012 against the N335.18 billion in 2011. This figure indicated an increase in the growth rate from 3.97% to 5.64% in 2012. An evaluation of the report revealed that the growth was led by crop production which accounts for 20.4% of overall economic growth in 2012. This figure would no doubt be different in the current period owing to the increased insecurity in the northern region which accounts for bulk of the Nigerian agricultural production.