ABSTRACT
Lack of capital has been
identified as one of the constraints faced by small scale
farmers. The aim of the project was to assess the impact of credit on
agricultural production with
specific objectives to determine
its effect on farm size,
cost of labour,
cost of production,
quantity of inputs
as well as output among
small scale farmers
in Makarfi Local
Government Area of Kaduna State,
and also to
determine any significant
difference, if any between borrowers and
non-borrowers. Structured questionnaires were administered
to borrowers and non-borrowers, who had been selected using the stratified
random sampling technique, and
the data obtained
were summarized
into percentages. The Analysis of Means technique was used to determine if there were statistically
significant differences between the two groups. The Cobb-Douglas Production
Function Analysis was also used to test the
relationship between key
independent variables such as loan
amount, farm size, inputs and farm output as the dependent variable. Results showed a
significant difference between
borrowers and non-borrowers in farm
size, quantity of inputs used (except labour), cost of production, farm output, and
income over the
five year period
(1999 – 2003).
The independent variables; loan
amount, farm size,
and inputs reasonably explained the
variation in the total value of output of the farmers. The study shows
therefore, that access
to microcredit over
a long period
of time impacts
positively on agricultural
production. Government and
the organised private sector should regular and timely credit to
farmers.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE
PROBLEM
In Nigeria today most of the
population lives in the rural areas, majority of
whom are engaged in
agriculture, the mainstay of the rural
economy. This
percentage consists mainly of
poor, deprived, illiterate
people whose
income level
is generally very
low. The United
Nations Development
Programme (UNDP) views the
empowerment of the poor as a key strategic
approach to the abolition of
poverty. It is worth noting that one third of the
world’s poor live
in rural areas
and depends primarily
on agriculture.
According to the
International Fund for Agricultural Development (IFAD),
Official Development Aid (ODA)
to this sector has been steadily declining
since 1988 and today, only 8
percent of this aid goes to rural development.
The Food
and Agricultural Organisation,
FAO (2000), states that
rural
people need credit to allow
investment in their farms and small businesses.
This is because lack of
credit has plagued poor farmers and rural dwellers
for many years.
Towards this end the United Nations Organisation (UNO)
advocates the granting of
micro-credit, particularly to the rural poor. And to
emphasise the
importance of micro-credit to
the rural populace, in 2000 it
declared 2005 “International
Year for Microcredit”.
According to Mora (1994) the
rural economy in Nigeria is characterised by
a vicious cycle
of low productivity,
low income, low
savings and low
investments. He further
stated that this vicious
cycle in the
rural areas has
been identified
as one of the major
factors impeding rapid
economic
development. The importance
of credit in rural development can, therefore,
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not be
overemphasised as a farmer
who wants to
improve his economic
condition needs money
for investment. Adetunji (1999) has also
described
access to credit
by over 45
percent of the
population living below
the
poverty line
as a veritable
tool for rural
empowerment and poverty
alleviation. Credit
will help the
cause of sustainable
development of low
income people
in a country
like Nigeria where
a large proportion
of the
population depends largely on
primary production (Aiyedun,
1996). As
Poyi (2005) puts it, the
agricultural sector is the largest single contributor to
the GDP.
But according to
Tarauni (1996), agricultural
production is
declining, because in
1964 the contribution of agriculture to the
GDP was
64 percent.
Poyi (2005) stated
further that since
over 70 percent
of the
populace is engaged in this
sector in one way or the other, it needs financial
intermediation to
further stimulate it’s growth
and development. Ijere
(1998) had implied the same
thing by saying that credit can be considered
from its ability
to energise or
motivate other factors of
production, thus
acting as a
catalyst that activates
the engine of
growth, enabling it to
mobilise its
inherent potentials and to
advance in the planned
or expected
direction.
Although sources
of credit in
rural areas cover
the Banks and
Financial
Institutions, Credit
Unions, Non-Governmental Organisations, Self-Help
Groups and private lenders,
the fortunes of small-scale entrepreneurs within
rural settings have
been constrained by (a) lack
of/poor accessibility to
credit from
formal lending institutions,
(b) exploitative lending
conditions
of local money lenders, (c)
widespread poverty occasioning low
purchasing
power and
(d) unfavourable macro-economic environment.
Even the
traditional credit delivery
systems such as the “adashi” and the cooperative
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societies have
been hamstrung by
limited funding and
the inability to
expand loan portfolios. This
is despite the fact that various policy measures
have been
instituted by government
to boost production
capacities in
agriculture and small-scale
processing enterprises in the rural communities.
The federal
government of Nigeria
has since the 1970s
embarked on
substantial capital
investment programmes in agriculture.
These
programmes include
the Agricultural Development
Projects (ADPs),
Operation Feed the Nation
(OFN) which was launched in 1976, the
Green
Revolution programme
inaugurated in 1980, and subsequently the setting up
of the
Agricultural Credit Guarantee
Scheme (ACGS) in
1978. The
Nigerian Agricultural and
Cooperative Bank (NACB) was created in 1973,
and in
2000 became Nigerian
Agricultural, Cooperative and
Rural
Development Bank,
(NACRDB, after it was
merged with Peoples’
Bank),
and the
Nigerian Agricultural Insurance
Company (NAIC) subsequently
followed in
1993. In the late
1992 the National
Agricultural Land
Development Authority
(NALDA) was also created, all in a bid to promote
agricultural development.
Even
International Agencies such as the
United State Agency
for
International Development
(USAID) have come in
to contribute their
own
quota to
agricultural development. Since
1999 this agency
of the United
States Government
has provided substantial
assistance to, among
other
things, stimulate
agricultural production in
Nigeria. During the
year 2000,
USAID negotiated an
agreement with the federal government to implement
an expansive agricultural
programme. Already, according to USAID, farmer
access to the agricultural
technology targeted at the small holder producers
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is improving. There are
reports of the adoption of new technologies among
the target
population; such as farmers producing maize,
millet, cassava,
sorghum and cowpea. USAID
believes that the continued adoption of these
new technologies will help
increase production which will positively impact
on farmers’ income.
However, despite
these efforts at
improving agricultural production,
Ojo
(1998) puts it
aptly when he asked
the question: Why
has the agricultural
sector performed
so poorly despite
these huge government
investment
programmes in
it? The answer
might lie in
Ojo and Akanji’s (1983)
assertion that
these credit schemes,
which have been
articulated by
government as part
of their contributions
to agricultural development
and
the commercial
banks’ lending programmes,
tend to sidetrack
the small
scale farmer. However
according to Kyari (2000), this could be attributed to
the complications
of agricultural lending.
He asserted that
Nigerian banks
have had
to be coerced,
forced, begged and
encouraged to lend
to
agriculture. This, he said,
is because agricultural finance offers less than the
average return when compared
with other investment opportunities.
There is thus the need to
critically examine the role of credit in agricultural
production with a view to
highlighting areas of its strengths and weaknesses
and making recommendations
that will go a long way towards encouraging
lending to the sector, since
as we have observed, access to credit is critical
to lifting small scale
farmers above the subsistence level.
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1.2 STATEMENT OF THE
RESEARCH PROBLEM
Agriculture plays
a critical role
in the country’s economy. Since
the oil
boom of the mid 1970s,
however, agricultural production in the country has
suffered a setback, due in
part to the lack of financial support for the small-
scale farmer.
Improvement of the
economic condition of
the farmer to be
self-sufficient and self
reliant in food production is
therefore necessary by
providing support to them,
especially in the procurement of inputs (Edordu,
1981).
Successive governments
have come up
with numerous programmes
to
address the inability
of agricultural output
to keep pace with the country’s
demand for
agricultural products. Credit
institutions have over
the years
shied away from lending to
the small-scale farmers who form the larger part
of the
farming population, citing
reasons such as high
default rates,
difficulty in
monitoring numerous individuals
whose loans do not
provide
much return
on investment, as well
as not being
cost effective. Here
in
Nigeria only
a few empirical studies have been carried
out to quantify
the
effects credit has in
stimulating agricultural output and productivity in order
to provide a sound basis for
a micro credit advocacy as a strategy for rural
development. These
include studies by
Idah (1986), Tarauni
(1996) in
Kano, and Aiyedun (1996) in
Kwara state.
This study sets
out to fill
this important information gap,
especially by
comparing those who have
access to micro-credit with those who do not in
arears such
as input use,
agricultural output and
income. It is
hoped that
using those who have no
access to credit as a control group in the study will
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show clearly
whether credit makes
or does not make
a difference to
agricultural output among
small scale farmers.
1.3 RESEARCH QUESTIONS
The research
problem can be
reformulated into two
broad research
questions as follows:
1. Does credit to small-scale farmers impact on their farm
size, ability to
purchase inputs and their
production level or output?
2. When
compared with the
non-borrowing farmers is there a
marked
difference in farm size,
input use and production level?
1.4 STUDY AIM AND OBJECTIVES
The general aim of the study
is to examine the effect of credit facilities on
the production
level of small-scale
farmers in Makarfi
L.G.A. of Kaduna
State, with
a view to
making suggestions that would
go towards the
enhanced and
sustained provision of
credit to small
scale farmers.
Specifically, the study
pursued the following objectives:-
1. To quantify the
effect of credit
on the farmers’
farm size, input
use
and volume of output.
2. To compare borrowing
and non-borrowing farmers with
a view to
determining differences , if
any, in farm size, levels of input use and
volume of output between the
two groups.
3. To identify problems and
constraints to small scale
farmers in the
study area with regards to
access to credit.
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1.5 HYPOTHESIS
The following
hypotheses were drawn
from the research
questions of the
study: -
1. Credit made available
to the small-scale
farmers has no impact on
their farm size, use of
inputs and output levels.
2. There is no
difference in the
farm size and
levels of inputs used
between farmers who benefit
from credit and those who did not.
3. There is no
difference between volume
of output achieved
between
small scale farmers who
benefited from credit facilities and those who
did not.
1.6 JUSTIFICATION
In Nigeria the larger
population is engaged in agricultural production, which
has been
bedevilled with financial
problems over the past
two decades.
Government has made several
efforts to address these problems; it has come
up with
numerous policies over the
years as well as
created financial
institutions such as
the Nigerian Agricultural
Cooperative and Rural
Development Bank
(NACRDB) and guarantee
schemes such as the
Agricultural Credit
Guarantee Scheme (ACGS)
just to provide
credit to
farmers and guarantee their
loans respectively. It is necessary to find out if
lending to small scale
farmers increases their productivity.
This study was carried
out to examine if
lending to small-scale farmers in
Makarfi Local
Government Area of
Kaduna State increased
input use and
increased production
levels of such
farmers. It is
hoped that
recommendations from this
and other credit impact studies would contribute
towards policy changes by
government where it would pinpoint and rectify
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areas of
weakness in its
credit policies, which would
subsequently lead to
the uplifting of agriculture
in the country.
Kaduna State, and
specifically Makarfi Local Government Area was chosen
for this study because of
the following reasons:-
(i) The
researcher works with
an organisation that
manages the
Agricultural Credit
Guarantee Scheme (ACGS). As such, she has
been monitoring
agricultural projects within
Kaduna state for
over ten
years now and is
familiar with the
socio-cultural
environment, especially in
Makarfi area where a large number of
the loans the organisation
guarantees are located.
(ii) There are at
least two lending
institutions within the local
government area,
making access to
credit easier for
the local
populace.
(iii) Financial
cost is reduced for
the researcher because
of the
proximity to and familiarity
with the study area.
1.7 SCOPE OF THE STUDY
The study is limited to
Makarfi Local Government Area. Here,
apart from
the fact
that the populace is actively
engaged in farming
there are at least
two financial institutions,
the Makarfi Community Bank and Habib Nigeria
Bank Limited.
1.8 DEFINITION OF TERMS
Microcredit: A
small amount of
money loaned by
a bank or
other
institution to an individual which can often be without
any collateral.
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Inputs: Materials (fertilizer, tools,
pesticides, herbicides, and
seeds) used
by respondents for their
farming activities during one production year.
Output: Yield
derived from respondents’
farming activities in
terms of
number of
bags (100kg) harvested or the total
number of units
harvested
from a specific field (or
simply the total production from a farm unit).
Income: revenue generated from the sale of the produce harvested from a respondent’s farm unit.
Total cost of production: Cost of inputs as well as labour that go
towards
crop production in a farming
season.
Borrowers:
Farmers who have obtained loans from banks or other
institutions, between 1999
and 2003 for their farming activities.
Non-borrowers: Farmers who have not obtained loans from any
source
for their farming activities
between 1999 and 2003.