Full Project – CASSAVA ENTERPRISE/ AGRIBUSINESS STUDY IN IFELODUN METROPOLIS, KWARA STATE, NIGERIA

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CHAPTER ONE

INTRODUCTION

1.1       Background of Study

Nigeria is blessed with abundant natural and human resources, but despite its significant natural resources, majority of the citizens are living below the poverty line. For instance according to WDI, (2015), an estimated 60% of Nigerians live on less than US$1.25 per day. Nigeria was also ranked 91^stout of a total of 104 counties on the 2015 Global Hunger Index and 153^rdout of a total of 187countries on the 2012 UNDP Human Development Index. Malnutrition and hunger which is linked to poverty have been ravaging most developing countries and affecting their productive capacity. Classifying Nigeria as one of the poorest countries testifies to our failure to achieve our development policy as well as national food security. It once more awakened the government to the realities on ground, that is, the need to achieve the first sustainable development goal of no hunger before the year 2030.

Ifelodun is the largest local government area in Kwara State with an estimated population of about 206,042 km2 and an estimated total land area of about 3,435 km2 (NPC,2006; KWSMI, 2002). The area is located between latitude7°45’N and 9°30’E and longitude 2°30’E and 6°35’E. It is characterized by dry and wet season. The annual rainfall ranges between 1000 and 1500 mm. Average temperatures between 30°C and humidity range from 35 to 60%. The major source of livelihood and occupation of the people in the area is farming. Farming is traditional in nature with emphasis on the cultivation of crops such as sorghum, cassava, yam, maize and melon (KWSMI, 2002; Mohammed, 2008). Cassava is one of the crops majorly grown among farmers in the area.

World Bank (2012) estimates the population of Nigerian to above 160 million people, the largest in Africa almost accounting for 47% of West Africa’s total population. As the population increases, the country’s demand for food increases, while the ability to produce food diminishes because pressures from the growing population in form of desertification, climate change and erosion are also impacting on the already diminishing resources and further threatening food production.

Agricultural credit plays an important role in agricultural development. Agricultural household models suggest that farm credit is not only necessitated by the limitations of self-finance, but also by uncertainty pertaining to the level of output and the time lag between inputs and output(De Janvry and Sadoulet, 1995). Recent studies show the growth rate of investment in agriculture is less than other economic sector. Agricultural financing is one of the most important factors to develop rural areas in developing countries. Payment of bank credit is a way of financing. In fact, facilitation of access to credit can raise amount of productive investement. Credit has a crucial role for elimination of farmer’s financial constraints to invest in farm activities, increasing productivity and improving technologies. Generally, credit accessibility is important for improvement of quality and quantity of farm products so, that it can increase farmers income and avoid from rural migration. On the other hand, some policy makers believe that payment of credit with low interest rate to farmers can support them against some results of development policies that threat their welfare (Ghorbani, 2005). Therefore, with limited access to credit, the budget balance becomes a constraint, where expenditures have to remain less or equal to the sum of revenues during the period, accumulated savings and credit availability. Hence, credit constraint limits the optimum production or consumption choices (De Janvry and Sadoulet, 1995). In other words, if a producer faces an infinite supply of liquidity at a given price, the production decisions will be independent of consumption decisions. When credit is rationed, some borrowers cannot obtain the amount of credit they desire at the prevailing interest rate, nor can they secure more credit by offering a pay higher interest rate. In such circumstances, liquidity can become a binding constraint on many farmers operation. Facing such a situation, households have to choose how to invest and what imputs to buy depending on the level of credit they have access to.

Recent theoretical and empirical study in economics has established that credit markets in developing countries work inefficiently due to a number of market imperfections. The literature cites a number of market imperfections which lead some potential borrowers to be rationed out of the credit market. These imperfections include;

• Interest rate ceilings usually imposed by the government
• Monopoly power in credit markets often exercised by informal lenders(Bell et al., 1997)
• Large transaction costs incurred by borrowers in applying for loans
• Moral hazard problems(Carter 1998)

In many case a number of these imperfections combine to ration farmers out of the loan market. Zeller et al. (2001) found that in Bangladesh credit access had a significant and strong effect on both income and food consumption. In contrast, Diagne and Zeller (2001) found that lower profits levels can come from a number of sources including lower investments levels and misallocation of variable inputs. The literature suggests that credit rationing can cause a misallocation of resources in farm production. This misallocation of inputs can then cause the credit rationed farmer to have lower profit levels than his unconstrained neighbor (Carter, 1989; Feder et al., 1990). Petrrick (2004) indicated that access to subsidized credit has a statistically significant role in determining investment behavior of behavior of farmers. In various specifications of the credit-investment relationship, the average marginal effect of credit on investment was a similar than one, which implies that credit is partly used for purposes other than productive investment. Ghorbani (1997) believes that because of high transaction costs and interests rate, efficiency of formal credit payment to farmers in Mazandaran province of Iran is low. Chizari and Zare (2000) showed the effect pf credit on agricultural production is positive and significant. Regards to results of rural credit literatutre, farmers with credut access problems will invest less in capital assets and their land. Credit rationed farmers will not be able to smooth their expenses over time implying that they will not make long-term investments especially those which entail sunk costs.

Successive Nigerian governments have embarked on different policies and strategies to achieve increases in agricultural productivity. In view of the importance of cassava as one of the major staple food crop particularly for the poor rural households in Nigeria, for example, specifically, in 1999 the Federal Government of Nigeria embarked on the Presidential Initiative on Cassava (Manihotesculenta) Production. The main objective of this program was to achieve self-sufficiency in cassava production and for export with a targeted output of about 150 million tons of cassava per annum. Despite the fact that many studies support the hypothesis that access to credit increases the productivity and profit of the farm households (Diagne and Zeller, 2001; Adesina and Djato, 1996; Hazarika and Alwang; 2003; Foltz, 2004), couples with the fact that at farm level, the production costs for cassava in Nigeria are high, relative to other countries (Akinnagbe, 2010), this program adopted many strategies in order to achieve all its stated objective, but access to credit was not included. Consequently, after many years of investing massively in the program, the objective of the program has not been met, thereby highlighting the positive correlation between access to credit and agricultural productivity,

1.2       Problem Statement

Productivity is a condition related to the available resources as input, and individuals` access to it. At the world food conference, productivity is defined as a measure of efficiency of a person,machine, factory, system etc., in converting inputs into useful outputs. Productivity is computed by dividing average output per period by total costs incurred or resources(capital, energy, material, personnel) consumed in that period.

It has being observed that the agricultural sector is not doing well and it is the main supplier of food in Nigeria. In Nigeria, however, agriculture is dominated by small scale farmers (as can be seen in their small-scale farming activities) most of whom are rural-based, with low level of education; poor access to useful information and market and most importantly lack of access to credit finance. Inaccessibility of credit by these farmers hinders their acquisition of the required inputs to increase their output. Lack of these required inputs limit agricultural development by reducing farmers’ output, expected income, savings (needed for investment) and overall welfare of the small scale farmers in Nigeria(Daveze, 2000).

Enduring lack of credit access faced by these farmers have significant consequences on their productive ability, as well as, technology adoption, food security, nutrition, health and welfare of the smallholder farmers’ households (Eyo, 2008), But enduring Lack of credit access faced by these farmers may or may not have significant consequences on the productivity of farmers.Most especially small scale farmers. This is because their other factors that may also influence productivity which may be of significant effect on the productivity status of the respondent in the study area.Increasing small scale farmers’ output for self-sufficiency, no doubt, requires more use of inputs such as improved seedlings, fertilizers, pesticides, land and labour and they all necessitate the use of credit (Odoemenem & Obinne, 2010).

However,  some empirical studies have revealed cases of credit insufficiency among rural farmers in Nigeria (Deaton 1997; Udry 1990; Zeller 1994; Idachaba, 2006; Adebayo and Adeola, 2008 and Ololade and Olagunju, 2013) and some empirical literature has also found that in rural areas of developing countries, credit constraints have significant adverse effects on farm output (Feder et al., 1990; Sial and Carter, 1996), farm investment (Carter and Olinto, 2003), and farm profit (Carter, 1989). However, This Study is conducted primarily to investigate the empirical assessment of the influence of access to credit on outcome of farm production to provide information for effective policy intervention that will improve farmer’s purchasing power to have access to creditthereby increasing productivity to its barest minimum

1.3       Research Question

• What are the socio-economic characteristics of the farmers in Ifelodun Local Government Area of Kwara state?
• What are the sources of credit in Ifelodun Local Government Area of Kwara state?
• Has access to credit affect productivity of the farmers in Ifelodun Local Government Area of Kwara state?

1.4       Objective of the Study

The specific objectives of the study are:

1. Assess the socio economical characteristics of the farmers and their household in Ifelodun Local Government Area of Kwara state
2. Examine the sources of credit available to the farmers in Ifelodun Local Government Area of Kwara state
3. Examine the effects of access credit on farmers productivity in Ifelodun Local Government Area of Kwara state

1.5       Research Hypothesis

The following null hypothesis will be tested in this study;

• Access to credit does not significantly influence the productivity of small scale farmers in Ifelodun Local Government Area of Kwara state

1.6       Justification of Study

The Empirical analysis of credit availability to small scale farmers and its influence on the productivity most especially in the rural and urban household is very important. Strong economic growth and development can only be achieved when implementing programme(s) aimed at reducing to the barest minimum poverty by increasing food productivity through the empowerment of people by increasing access to factors of production, most especially credit (Oguntade and Mafimisebi, 2009). It is therefore necessary that the influence of credit on farmers productivity be well looked into as a reference point for economic policies.

Having a proper understanding of the different drivers of credit to small scale Farming household, could help shed more light on how various sources of credit (institutional and non-institutional sources) can re-arrange lending mechanisms for the Good of the farmers in the region.This Analysis will enable the federal government and most especially state and local government to estimate the level of productivity of the study area and this will also enable them to formulate policies directed at ensuring farmers have access to credit thereby increasing Agricultural development amongst small-scale.

Essentially, the study attempts to extend literature on small scale agriculture financing in the rural region. Understanding the different drivers of credit to small scale farming households, could help illuminate how financial institutions can rearrange lending mechanisms in order to target vulnerable farmers in the rural region. The outcome of this research will provide a platform form for decisions involving the rural areas using Ifelodun local government as a case study and the betterment of the life of its impoverished citizenry who are grossly affected by the grave economic situation in the area.  It is intended that at the end of this study, it will serve as a guide and reference source to researchers; government, development planners and all others interested in promoting agricultural productivity in Nigeria and the world at large. It will add to the body of existing knowledge with respect to farmer’s productivity and credit accessibility in the study area; and provide data for further study.

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