Determinants Of Agricultural Value Chain And Economic Growth In Nigeria

ABSTRACT

The study investigates the Determinants of Agricultural Value Chain and Economic Growth in Nigeria. Thus, beyond the issues of agricultural productivity, economies are now focusing on the structural connectivity issue linking farmers with processors, retailers and other value chain actors. The study garnered time series data from World Development Index (WDI) (2018), National Bureau of Statistics (NBS) (2018)  and Central Bank of Nigerian (CBN) Statistical Bulletin (2018) on key variables of  Economic Growth (ECG), Small and Medium Scale Enterprises (SME), Trade openness to Agricultural (ATO), Insurance to the Agricultural Sector (INS), Road Transport Infrastructure (RTI), Demand for Staple Processed Food Products (DSF) ,Weather condition (WCN) and Access to Digital Technology (ADT). Using E-views 10 econometric package, it employed the unit root test, Autoregressive Distributed Lag (ARDL) bounds co-integration testand error correction model estimation.The thesis adopted and modified Growth models which provides substantial guidance for specifying supply side agricultural potential output, which will be primarily linked to determinants of Agricultural Value chains. Findings reveal the following: from the unit root test , ECG, ATO, INS, RTI, and DSF were stationary at levels while WCN , SME and ADT attained stationarity at first differencing; the bounds test result also indicates a significant long run relationship existing between the dependent variable and the independent variables of our model; Insurance to the agricultural sector  and access to digital technology  in Nigeria were the most significant short run determinants of economic growth with respect to agricultural value chain; the error correction coefficient is negative and significant.Its coefficient is -1.00138 (100 percent). Meaning that equilibrium is restored to the tune of 100 percent on annual basis if distorted.The study made the following conclusion: the result of the bounds test which indicated a long run relationship existing between the dependent variable and the independent variables of our model implies good fortune for the economic prosperity of Nigeria with respect to the determinants of agricultural value chain; Insurance to the agricultural sector, and Demand for Staple processed Food Products  which exerted significant positive long run influences on the economic growth (ECG) in Nigeria is a clear indication that growth trajectory with respect to agricultural value chain, can be enhanced by these variables positively; the finding that Insurance to the agricultural sector , small and medium  scale enterprises and access to digital technology  in Nigeria as the most significant short run determinants of economic growth with respect to agricultural value chain is quite promising , consequently, the Nigerian economic growth dynamics can leverage on the insurance industry, small and medium  scale enterprises and digital technology to leapfrog economic growth. It is therefore recommended that government fiscal policy with respect to the agricultural sector should be sustained. Government at all levels should implement programmes that will redistribute income which will enhance disposable income, thereby encouraging consumption of food products. Government is expected to intensify effort in advancing insurance facility to the agricultural value chain programmes and encourage the use of digital technology in all facets of the value chain, for improvement in growths. Policy makers should prioritize advocacy on the efficacy of the various determinants of agricultural value chain.

CHAPTER ONE

INTRODUCTION

1. 1 Background to the Study

Frankly, agricultural value chains are at the centre of national and international efforts to unravel economic growth, promote rural development, and ensure access to food for a growing world population. As value chains become increasingly global in scope, it has become powerful tool for coordinating production and consumption patterns. The concept of “value chain” was described for the first time by Michael Porter in his 1985 best-seller entitled “Competitive Advantage: Creating and Sustaining Superior Performance”. The concept at that time applied to the industrial sector and described all the activities that should work together harmoniously to produce and sell a product while making it possible for actors at all levels to obtain the highest possible reward (profits) (United Nations, 2012). Thus, Kaplinsky (1999) definition of value chain is directly linked to the agricultural value creation, as he defines the value chain as a series of activities required for the transformation of a product or service including the design, the different intermediate phases of its transformation, the distribution up to the final consumer and the disposal of waste after its use. This definition of value chain favours the development of the agricultural sector. It is related to an agricultural industry structured around an organization (Kaplinsky and Morris 2001).

Value chain is also effectively determining trade patterns and the integration of countries in the global economy. This is supported by World Trade Organization (WTO) Rounds of protocols on Agriculture. Okonkwo (2015) is of the view that Nigeria can play the role of China in the ECOWAS sub-region by becoming the uncontestable hub for West Africa and possibly beyond. Across sectors and sub sectors, production processes at the local level are now closely linked to markets which may be in other countries and continents. This involves a growing number of nonfarm processes before a product reaches its final destination.

To the Standing Committee for Economic and Commercial Cooperation of the Organization of Islamic Cooperation (COMCEC) (2015), traditional ways of agricultural production, with farmers producing for unspecified demands and relying on local markets to absorb whatever they produce, are increasingly being replaced by practices that involve greater coordination along value chains and higher levels of control by buyers, such as manufacturers and retailers. Consequently, beyond the issues of agricultural productivity economies are now focusing on the structural connectivity issue linking farmers with processors, retailers and other value chain actors.

The dynamic nature of value chains has drawn attention to several recent trends, such as quality based rather than price based competition, international product standards, technological advancements and agricultural innovations, which underpin value chain competitiveness and determine how producers can position themselves within value chains(COMCEC, 2015).

Modestly, there is a general belief that the economic development of any country depends on the quantity and quality of its resources, the state of technology and the efficient utilization of resources in both the production and consumption processes (Uzoigwe, 2007).Thus a robust agricultural sector is the engine of growth in both developed and developing economies. The agricultural sector play a catalytic role in a modern economy as it is linked to the manufacturing sector which is crucial for economic transformation. That is, the manufacturing sector serves as a catalyst for economic growth and development while the agricultural sector serves as the bedrock of every economy.

Undoubtedly, Nigeria’s agricultural sector requires massive investments to increase production and to create value addition across the most profitable segments of the value chain. Consequently, strategies for upgrading the production and processing segments of the agricultural value chain becomes inevitable. It is evident that Africa ( Nigeria inclusive) is presently riddled with poverty, disease, ignorance, food insecurity and famine, with a large external debt and continued mismanagement of human, material and physical resources (Iwuagwu, 2000). It is not surprising, therefore, that 22 of the 36 poorest countries of the world are in Africa (Uzoigwe, 2007).

Thus, the growth pattern in Nigeria may be investigated through the study of such vital indices of growth of value added/value chain in the agricultural sector. For a country of the size of potential in Nigeria, agriculture is indispensable if the country is to achieve rapid economic and social development. This recognition of the importance of agriculture in the growth process is linked with the choice of an appropriate strategy of industrial development witnessed in developed economies. The performance of the agricultural sector and its associated value chain has important implications for the achievement of macroeconomic policy objectives (Dlamini et al., 2015). Obasanjo (2006) admitted that the building blocks for the diversification of the Nigerian economy and the priority sources of growth for the economy are agriculture, manufacturing, solid minerals and construction. In other words, accelerating the pace of growth and development of the agricultural, manufacturing, mining, education, healthcare and other non-oil sectors will lead to faster integration and improvement in the welfare of the vast majority of the people of Nigeria.

Agriculture was the mainstay of Nigeria’s economy. It kick-started the development process in the country but was relegated to the background due to the emergence of oil revenue. Agriculture remains the base of the Nigerian economy irrespective of the Nation’s concentration on oil, providing the main source of livelihood for most Nigerians. It employs two-thirds of the entire labour force (FAO, 2018).  Value chain in the agricultural sector therefore suffice the economic growth dynamics associated with diversification.

To Ajayi (1984), agriculture was the backbone of the economy and leading sector in Nigeria in the 1950s and 1960s; during this period, a predominant share of the GDP originated in agriculture. Earlier work of   Simpson (1987) explains that the small independent farmers of independent Nigeria accounted for 70 per cent of its exports.   From 1960 to 1969, the sector accounted for an average of 57.0% of GDP and generated 64.5% of export earnings. From 1970 to late 2000s, the sector’s contribution to GDP and export earnings steadily declined, because Nigeria focus shifted to petroleum exploration. Over the past five years, the sector has contributed an average of 23.5% to GDP and generated 5.1% of export earnings. Similarly, the agricultural share of the GDP decreased from 62.9 per cent in 1960 to 39.0 per cent in 1990. It further decreased to 26.3 percent in 2000, showed some upward improvement from 34 percent in 2001, 36 percent in 2002 and declined slightly to 32 percent in 2005.

However, the agricultural share to the GDP has not reached the 62.9 percent mark of 1960. It is significant that by almost all economic measures, the economic progress of Nigeria distinctly accelerated after 1957 and manufacturing started to grow, though this was essentially an urban phenomenon (Simpson, 1987). However, the discovery of crude oil in large commercial quantities and the attendant oil boom which are attributable to the Israeli-Arab War, earned about $8.62 and $25.3 billion respectively for Nigeria. In spite of the global oil market glut, which started in 1981, Nigeria earned about $200 billion from oil exports between 1970 and 1990. This represented about 95 per cent of the total foreign exchange earned in the economy (Adeola, 1994).

The oil boom had major important implications for the Nigerian economy.  There is evidence of the serious effects of “Dutch disease”, usually diagnosed when a resource rich country earns significant increases in revenue from a sector’s raw material export, so that the resulting boom tends to “crowd out investment” in other sectors that might be more likely to support development, particularly agriculture(Sachs &Wamer, 2001). The boom encouraged the government to embark on an ambitious industrialization strategy, which emphasized import substitution.

The investment programme and the policy of import-substitution (ISI) pursued during this period was predominantly in favour of light industries over the capital goods industry. Onah (1986) opined that, Nigeria’s import substitution strategy, based on a system of protection, led to a home-market bias in resource allocation in favour of consumer and raw material production. However, the volatility in crude oil price regimes have triggered conversations around the role of Agriculture and its value added in economic diversification and growth dynamics of crude oil endowed nations, Nigeria inclusive.

To Oti (2018), Contemporary figures show that Nigeria’s agricultural sector over the last four years has experienced rising growth but within a declining band. For example, the agricultural sector grew by 3% in the first quarter (Q1) of 2018 but dropped to 1.5% by the second quarter (Q2) of the year. Indeed, heading into 2018 the agricultural sector made up over N550 billions of GDP but this has since fallen to about N355 billion by the first half of2018.  This is of major concern when it is realized that between 2009 and 2017 the government through the CBN’s Commercial Agricultural Credit Scheme (CACS) spent a thumping N551.18 billion (for 547 projects) or over half a trillion Naira in agricultural funding without sustained growth.

In 2017 alone the government made provisions for N200billion in CACS of which N155billion had already been disbursed by February 2018.  Poor agricultural performance relative to large fiscal outlays year-on-year reinforces the notion in business circles that subsidized lending to small scale and unstructured agricultural operations is inept, ineffective and grossly wasteful. Previous agricultural development programmes intended to increase agricultural output and improve the well-being of the masses, did not see the light of the day due to poor planning and ineffective implementation.

Nonetheless, Jacobs (2018) support for resource-based industrialisation programme involves the utilisation of the country’s abundant natural resources in producing goods needed in the country. This is a more sustainable and enduring form of industrialisation, compared with the import-dependent industrialisation, which has been practised in Nigeria for long.

The Nation (2018) gathered that value addition, is done mostly by Small and Medium scale Enterprises (SMEs) because they are the off-takers, taking the materials from the unusable form to the next intermediate stage. It is the intermediate raw material that industries require for production.

Nevertheless, because of the low capacity of the SMEs to add value to available local raw materials, coupled with lack of access to capital to set up processing facilities, process technology and techniques, and spare parts, among others, they have not been able to fill this gap. Interestingly, Nigeria’s potential for production of a wide range of raw materials and products has never been in doubt. This has promising implication for value chain activities. The country boosts of human and natural resource endowments as well as good climatic conditions to support the production of agro-raw materials and products required by industries along the value chain.

Sanusi, who participated at the AFDB meetings in Busan, pointed out that nine out of every 10 countries in Africa have huge trade deficits with, China (AFDB, 2018). He said Asia developed mostly on domestic investments and resources, noting that this underscored the need for Nigeria and other African governments to invest in and promote creativity and indigenous enterprise.

Nigeria is expected to lead in this direction. Industrialization policy should take into account the unique conditions of each country’s resources, particularly agriculture. New technologies can provide leapfrogging opportunities by speeding up the process and creating new values. He is of the view that Smart infrastructure allows optimal use of resources and can even replace traditional infrastructure in a more efficient manner. The federal government of Nigeria believes that revenue generation will help in growing of the economy and get Nigeria out of the current recession, if areas such as Agriculture and manufacturing are concentrated on (Ufiobor, 2017).

It is, therefore, apparent that the fights for achieving food and nutrition security as well as prosperity for Nigeria will be won or lost by the way agricultural value chains are managed. Agricultural value chains experience numerous challenges including the scale of operations, poor coordination as well as institutional failure, technical constraints with respect to Small and Medium Enterprises, inadequate insurance systems, trade deficits, poor road network, and severe climate change impacts.

Nigeria is expected to unlock her economic potential by advancing coordinated programmes and leverage on agricultural value chain for economic growth and prosperity. According to Thisdaylive.com (2016) the success of Agricultural value chain on the Nigerian economy is far enormous, with the current agricultural income of the country, put at N15 trillion as against the potential value of about N40 trillion. Nigeria could pride herself as an investment nucleus in agriculture and put the nation back to limelight as an agrarian nation, capable of sustaining economic growth. It is expected that determinants of agricultural value chain ; digital technology, number of entrepreneurs,  demand for processed staple food products, insurance schemes, trade Openness, road transport infrastructures, and climate change (weather conditions)  if properly addressed will impact on the economy positively.

1.2 Statement of the Problem

The Nigerian economy was at the same level of development as countries such as Brazil, Indonesia, Malaysia and Pakistan in the 1950’s – 60’s, but currently it is far behind all of them in terms of its overall level of economic development (Egbochuku, 2001). In principle, Nigeria has lagged behind other oil producing countries in terms of development, especially as most of these countries are now emerging as Newly Industrialized Countries (NICs).

The MDGs declaration by the UN is a wakeup call for Nigeria to redouble its economic development efforts towards achieving rapid and diversified development in the twenty-first century. Hence, the need to turn to the agricultural sector for the value it is expected to add on the economic growth dynamics.  Reflecting on the performance of Nigeria’s economy over the years, Abdulahi (2002) concludes that it is still not satisfactory for the average Nigerian citizen. The Problem is that the different development planning objectives and efforts put in place by the various past governments aimed at poverty reduction, economic growth and general economic development, have not achieved the desired objectives.

The problem is either that the agricultural, manufacturing, mining and quarrying, education and health policy objectives are not well articulated or that certain actions by the governments and others within the economy have tended to encourage variables that hinder the implementation and realization of economic development in the country, as the percentage of Nigerians living in extreme poverty could increase by 2030 (World Poverty Clock, 2019).

The manufacturing sector, if well developed, is a major driver of growth in any economy. However, this is made possible due to the linkage with the agricultural sector. The agricultural sector through its value chain is expected to impact on the manufacturing sector in a synergistic way.  Furthermore, it is disgusting that in Nigeria, industries are closing down while some others are being converted to places of worship like churches and mosques. This is as a result of the neglected backward integration of the agricultural sector and the linkage it should provide.

Ajayi (2011) reported that between year 2000 and 2010, over eight hundred manufacturing firms in Nigeria have been either shut down or have temporarily halted production. Most of them would have remained in production if the values are created in the agricultural sector.In similar vein, to Mgbenka   and Mbah   (2016), there is very limited access to modern improved technologies and their general circumstance does not always merit tangible investments in capital, inputs and labour. Consequently, agricultural sector being a major employer in Nigeria, yet provides a decreasing contribution to National Gross Domestic Product (GDP). Specifically, the agricultural sector, has been declining consistently with further increases in oil exports (Okonkwo, 1989). They noted that certain factors are responsible for these inefficiencies in farming in Nigeria. This has come about through the persisting dry conditions (climatic conditions) that farmers experience. These farmers lack agriculture information and this is a factor that promotes ignorance of modern farming technologies in the farmers hence the constraint requires more attention than it is now. These farmers also operate under high costs of production that affects both the commercial and smallholder farmer and most importantly other constraints against small holder farmer.

Farmers in Nigeria have limited access to credit facilities (this affects the value chain prospects) which reduces their productivity to a great extent. In spite of the fact that Nigeria has a lot of cultivable land, a large percentage of it is being converted to other uses than agriculture (Mgbenka   and Mbah , 2016). One of the most destructive factors that hinder productivity in agriculture is lack of market and possible supply chains which discourages participation in production and value creation. In addition to these challenges, Obiechina (2012) points out that the main reason for poor performances of smallholder farmers is due to lack of commitment by all tiers of governments towards  implementing the right policies and programmes.All these, add up to loss of agricultural products and post-harvest losses in Nigeria.

Nigeria is facing two key gaps in agriculture today: an inability to meet domestic food requirements and an inability to export at quality levels required for market success (FMARD, 2016). The former problem is a productivity challenge driven by an input system and farming model that is largely inefficient. As a result, an aging population of farmers does not have enough improved seeds, fertilizers, irrigation, crop protection and related support to succeed. The latter challenge is determined by an equally inefficient system for setting and enforcing food quality standards (see Sanitary and phytosanitary of WTO Protocols), as well as poor knowledge of target markets. Insufficient food testing facilities, a weak inspectorate system in FMARD, and poor coordination among relevant federal agencies serve to compound early stage problems such as poor knowledge of permissible contaminant levels.

Nigeria’s agriculture still lags behind and has not been able to be the propeller of other sectors of the economies as was seen in most Asian and Western countries during their green revolutions. Nigeria now found itself in a cross road where its food security and poverty issues, are getting even more complicated to solve with an increasing population growth rate, falling crude oil prices, decreasing water and land availability, increasing food and energy prices, increasing global warming and other related environmental issues. It is now evident that agricultural and rural transformation be taken seriously as a pathway to get Nigeria out of poverty and food insecurity leading to economic growth.

Putting Nigeria’s agricultural sector on a path of growth will require actions to solve these two gaps: produce enough fresh, high quality foods for the Nigerian market; serve the manufacturing sector and export market successfully for foreign exchange gains. It is expected that the potentials of value addition in the agricultural sector will help drive aggregate productivity and diversification policy of the Nigerian economy which has been the bane of the economy. This will be achieved if and only if the determinants of  Agricultural value chain challenges; scale of operations constrained by digital technology, poor coordination associated with number of entrepreneurship,  as well as institutional failure in research initiatives to rejig the value chain, technical constraints with respect to Small and Medium Enterprises, inadequate demand for processed staple food products, inadequate insurance systems, trade deficits (Trade Openness), poor road network, and severe climate change (weather conditions) impacts are addressed.

1. 3 Objective of the study

The broad objective of this study is to explore the determinants of agricultural value chain and economic growth in Nigeria. It is believed that the agricultural sector is critical on the economic growth dynamics of transiting economy like Nigeria.

The specific objectives of the study are to:

(i) To ascertain the relationship between Weather condition and economic growth in Nigeria.

(ii) To determine the relationship between Insurance to agricultural sector and economic growth in Nigeria.

(iii) To find out the relationship between Trade openness to agricultural sector and economic growth in Nigeria.

(iv) To state the relationship between Demand for processed staple food products and economic growth in Nigeria.

(v) To evaluate the relationship between Road transport infrastructure and    economic growth in Nigeria.

(vi) To assess the relationship between Access to digital technology and economic growth in Nigeria.

(vii) To measure the relationship between Small and Medium Scale Enterprises and economic growth in Nigeria

(viii) To access the long run relationship amongst the determinants of agricultural value chain and economic growth in Nigeria

1. 4 Research Questions

The following research questions are proposed.

(i) What is the relationship between Weather condition and economic growth in Nigeria?

(ii) What is the relationship between Insurance to agricultural sector and economic growth in Nigeria?

(iii) What is the relationship between Trade openness to agricultural sector and economic growth in Nigeria?

(iv) What is the relationship between Demand for processed staple food products and economic growth in Nigeria?

(v) What is the relationship between Road transport infrastructure and economic growth in Nigeria?

(vi) What is the relationship between Access to digital technology and economic growth in Nigeria?

(vii) What is the relationship between Small and Medium Scale Enterprises and economic growth in Nigeria?

(viii) Is there long run relationship amongst the determinants of agricultural value chain and economic growth in Nigeria?

1.5     Statement of the Hypotheses

The following hypotheses are formulated for the study:

H01: There is no significant relationship between Weather condition and economic growth in Nigeria.

H02: There is no significant relationship between Insurance to agricultural sector and economic growth in Nigeria

H03:There is no significant relationship between Trade openness to agricultural sector and economic growth in Nigeria.

H04:There is no significant relationship between Demand for processed staple food products and economic growth in Nigeria.

H05:There is no significant relationship between Road transport infrastructure and economic growth in Nigeria.

H06:There is no significant relationship between Access to digital technology and economic growth in Nigeria.

H07: There is no significant relationship between Small and Medium Scale Enterprises and economic growth in Nigeria

H08: There is no significant long run relationship amongst the determinants of agricultural value chain and economic growth in Nigeria.

1.6 Significance of the study

This study is significant for a number of reasons, including:

(i) The achievement of rapid economic development through the transformation of the country’s real sector (agriculture), which is expected to have synergy with the manufacturing sector. This will not only reduce poverty by ensuring food security but also aid in increasing agricultural and industrial production, increasing exports, and per capita income and consumption in Nigeria;

(ii) The achievement of a diversified economic development and the SDGs in Nigeria through the transformation of the non-oil sector (agriculture) will strengthen and broaden the productive base of the country, to avoid heavy reliance on the petroleum sector as the major recipient of foreign exchange to the country;

(iii) Since the delayed development in Africa and by extension in Nigeria is being addressed globally through SDGs, attention should be concentrated in channeling global financial resources to the agricultural and industrial sectors, because of their strong linkage and high value-added effect to the rest of the economy;

(iv) The achievement of rapid and diversified development in Nigeria through the country’s agricultural sector can help raise the economy to being a global competitor in the agricultural and food commodity market.

(v) It will help address the problems of unemployment.

(vi) An empirical analysis of the sectorial determinants of the agricultural sector’s value chain using the multi stage methodology of dynamic cointegration econometric model for Nigeria is considered suitable and relevant for providing feedback and policy options for attaining rapid economic development in the country.

1.7 Scope of the Study

This study investigates the determinants of agricultural value chain in Nigeria. Secondary data were sourced from the WDI and the Central Bank of Nigeria. The study covers the period 1980 – 2018. The thematic scope include only the agricultural sector as it is concerned with the economics of diversification of the Nigerian economy.

 1.8  Organization of the Work

This work is organized and arranged in sequential order and reviewed chapter by chapter and each dealing with different topics and frameworks.

The first chapter dealt with the introduction which is an overview of the background, statement of problems, objective of the study, research questions, research hypotheses, significance of study, scope of work. Chapter two is the review of related literature, which is divided into conceptual literature, theoretical literature and empirical literature.

Chapter three gave a reflection of the techniques and methods used in analysis of data collected for the study. It is an overview of the methodology with which data were analyzed. They include the design of the study, data on variables, model specifications, apriori expectation and procedure for data analysis.

Chapter four deals with data presentation,, analysis, discussion of results, hypotheses testing and discussions, while chapter five, which is the concluding part of this work dealt with summary of the findings, conclusion, recommendations and suggestions for further research.

Pages:  270

Category: Project

Format:  Word & PDF                

Chapters: 1-5                                                      

Material contains Table of Content, Abstract and References.