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ABSTRACT

In most agrarian economies like the type that exists in Nigeria, agricultural production
provides the needed fulcrum upon which a sustainable development would blossom. Being
the main source of food for most of the population, till date, agricultural production remains
the mainstay of the Nigerian economy. It provides the means of livelihood for most of the
population, a major source of raw materials for the agro-allied industries and a potent source
of the much needed foreign exchange. However, inadequate credit (among other factors) to
the agricultural sector led to the downward trend observed in agricultural productivity in
Nigeria. To avert such trend, the Federal Government of Nigeria established the Agricultural
Credit Guarantee Scheme Fund (ACGSF) in 1977 to assist farmers have access to credit as to
improve agricultural productivity. The setting up of the ACGSF was predicated on the
unwillingness of commercial banks to give loans to smallholder farmers for reasons of high
default rate on loan repayment and, therefore high risk, of repayment. In the course of the
fund’s operations, a number of problems have been identified as militating against its smooth
performance; some of which affected the amount of credit granted to the various agricultural
subsectors. Therefore, this study sought to examine (i) the impact of Agricultural Credit
Guarantee Scheme Fund on crop output in Nigeria; (ii) the impact of Agricultural Credit
Guarantee Scheme Fund on livestock output in Nigeria; (iii) the impact of Agricultural Credit
Guarantee Scheme Fund on fisheries output in Nigeria; and (iv) the impact of Agricultural
Credit Guarantee Scheme Fund total fund granted on Agricultural output and productivity in
Nigeria. The ex-post facto research design was adopted to enable the researcher make use of
secondary data and determine cause-effect relationship during the period, 1978-2008. The
Ordinary Least Square (OLS) estimation technique was adopted, using SPSS statistical
software to test the hypotheses, where Total Agricultural Credit Guarantee Scheme Fund
(TACGSF), Agricultural Credit Guarantee Scheme Fund to crop production (ACGSFCP),
Agricultural Credit Guarantee Scheme Fund to livestock (ACGSFLSP) and Agricultural Credit Guarantee Scheme Fund to fisheries (ACGSFP) were used as the independent
variables while Agricultural Production (AP), Gross Domestic Product Agricultural Crop
Production (GDPACP), Gross Domestic Product Agricultural Livestock Production
(GDPALS) and Gross Domestic Product Agricultural Fisheries Production (GDPAFP) were
used as the dependent variable. The study found that Agricultural Credit guarantee scheme
fund for crop production, livestock production and fisheries had significant positive impact
on crop, livestock and fisheries productivity in Nigeria for the period of the study and also,
the total agricultural credit guarantee scheme fund had significant positive impact on
agricultural output in Nigeria. The study therefore recommends that stakeholders in the
scheme viz: the farmers, lending institutions and government must show greater commitment
and dedication for the scheme to achieve its laudable objectives.

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study
Agricultural Production in Nigeria is progressively on the decline in terms of its contribution
to the Gross Domestic Product (GDP) as well as satisfying the country’s food requirement,
despite the fact that about 70 per cent of the population engage in agriculture, thus Nigeria
agricultural sector is unable to fulfill its most basic and traditional role of being the source of
food for the nation, therefore the food import has continued to rise (Odigbo, 2000). There is a
growing recognition by the Nigerian farmers of the effect of improved inputs and new
technologies on agricultural yield. The use of these inputs and the adoption of high yielding
techniques have given rise to an increased need for agricultural credit since majority of
Nigerian farmers are small-scale farmers and are often limited by unfavorable economic,
social, cultural and institutional conditions (Olubiyo and Hill, 2000). Insufficiency of capital
has been a major constraint to agricultural development (Agu, 1998) in order to improve
agricultural production modern farm inputs such as fertilizers, improved seed, feeds and plant
protection chemicals and agricultural machineries are needed over the hoe and machete
technology. Most of these technologies have to be purchased, yet very few farmers have the
financial resources to finance such purchases (Adeniji and Joshua, 2008).
Agriculture contributes immensely to the Nigerian economy in various ways, namely, in the
provision of food for the increasing population; supply of adequate raw materials (and labour
input) to a growing industrial sector; a major source of employment; generation of foreign
exchange earnings; and, provision of a market for the products of the industrial sector
(Okumadewa, 1997; World Bank, 1998; Winters et al., 1998; FAO, 2006). The agrarian
sector has a strong rural base; hence, concern for agriculture and rural development become
synonymous, with a common root (Eze et. al., 2010).
Eze et. al. (2010) posit that support for agriculture is widely driven by the public sector,
which has established institutional support in form of agricultural research, extension,
commodity marketing, input supply, and land use legislation, to fast-track development of
agriculture. These are aside the Private sector participation is not limited to local or foreign
direct and portfolio investment financing, but also to sponsorship of research and
breakthrough on agricultural issues in universities, capacity building for farmers and, most
importantly, the provision of financing to farm businesses. International governmental and non-governmental agencies including the World Bank, Food and Agricultural Organization
of the United Nations, etc., also contribute through on-farm and off-farm support in form of
finance, input supply, strengthening of technical capacity of other support institutions, etc
(see, Eze et. al., 2010).
At independence in 1960, Nigeria’s agriculture was characterized by high production
achieved by mobilizing small scale farmers, provision of infrastructure (roads, railways)
geared towards developing crops required for export, and foundation laid for research and
export. After independence, government interventions in agriculture were realized within the
framework of development plans and annual budgets. Food was abundant and demand met
without resort to import (Okoro and Ujah, 2009).
Using a broad classification, the Central Bank of Nigeria (CBN) and National Bureau of
Statistics (NBS) document the import and export agricultural products in the following
categories – live animals and animal products; vegetable products; animal and vegetable fats
and oil; foodstuff, beverages, spirit and vinegar, tobacco; and raw hides and skins leather,
furskins, and saddler. The agricultural exports of significance include cocoa beans and
products, rubber, fish/shrimp, cotton, processed skin, etc (Okoro and Ujah, 2009). These
agricultural products account for about 39.7% of the total nonoil exports in 2007 (CBN,
2007). According to Soludo (2006), agriculture has been growing at about 7% per annum in
the last three years and has been driving the nonoil growth, and will continue to hold the key
to growth, employment and poverty reduction.
In terms of value of import visàvis export, Nigeria is a huge netimporter of agricultural
products. The importexport gap has been widening since 1999 and this puts the agricultural
policy of the nation to question. This situation, however, provides a unique opportunity for
closing up or eliminating this ‘agricultural deficit’ through functional policies and budgets
(Okoro and Ujah, 2009).
Agriculture also is a significant sector in the Nigerian economy. Although Nigeria depends
heavily on the oil industry for her revenues, Nigeria is predominantly an agrarian society with
the sector contributing about 42%1 of real GDP in 2008 (CBN, 2008). In 2007, the
contribution of agriculture to economy totaled some $132.2 billion (Economist, Sept. 2008).
Eboh, Ujah and Nzeh (2009) show that the contemporary economic significance of the agricultural sector is even more remarkable as in the past half a decade, the impressive
growth rate of the nation’s economy has been driven by the nonoil sector, particularly
agricultural sector. There are, however, doubts about the sustainability of the current growth
rate. The recent upsurge in agricultural growth rate could have been driven mainly by
production of staple crops, while productivity has remained low and internationally
uncompetitive, and yields of most crops have actually declined over the past two decades
(Mogues et al., 2008; Eboh et al., 2006).
Approximately 70% of the Nigeria’s population engages in agricultural production at
subsistence level, while agricultural holdings are generally small and scattered (FGN, 2008).
Smallholder farmers constitute 81% of all farm holdings and their production system is
inefficient. Smallscale (0.15.9 ha), medium scale (6.09.9 ha) and large scale (>10 ha) are
the three broad categories of farm holdings in Nigeria, with the smallscale farm holdings
predominating the country’s agriculture and accounting for about 81% of the total farm area
and 95% agricultural output (see, Shaib et al., 1997; FMAWR, 2009). The estimated average
operational holding is 2 ha per farm family.
Further analysis of the working population data indicates that growth rate of agriculture
working population seems to be the driver of the growth rate in total working population. For
instance the growth rate of agriculture working population dropped from 3.73% in 2003 to
1.94% in 2007, while that of the total working population dropped from 4.46% in 2003 to
3.25% in 2007 (see, Ujah and Okoro, 2009). The high correlation between growth rates of
total working population and agriculture working population seems to suggest that agriculture
holds the potential for tackling unemployment in the country at least in the shortrun. Despite
the significance of agriculture in the nation’s economy, the sector is clearly the least
productive when compared to other sectors (Ujah and Okoro, 2009).
The Agricultural Credit Guarantee Scheme Fund (ACGSF) was formed under the military
government in 1977 with an initial capital base of N100 million distributed between the
federal government (60% equity) and the Central Bank of Nigeria –CBN (40%). The ACGSF
is exclusively managed by a board set up under the supervision of the CBN (management
agent). The fund is set up with the sole purpose of providing guarantee in respect of loans
granted by any bank for agricultural purposes (Central Bank of Nigeria, 1990). Nwosu et al (2010) noted that the ACGSF was formed solely with the objective of encouraging financial
institutions to lend funds to those engaged in agricultural production as well as agroprocessing
activities with the aim of enhancing export capacity of the nation as well as for
local consumption. This is solely exclusive for large scale farming (Somayina, 1981).
The question that comes to mind is whether the declining share of agricultural loan from
commercial banks can be traceable to the challenges that encumbered ACGSF. For example,
Nwosu et al (2010) identified three major problems associated with the ACGSF scheme,
which include increasing incidence of loan defaulters, bank related problems and the
inclusion of the term “personal guarantee”. Nwosu et al reiterates that the term is subjective
in interpretation especially as the decree forming ACGSF was not able to explain this.
Therefore, banks utilize personal judgment and circumstantial framework to interpret this.
This will hinder the achievement of the objective of the scheme (see, Nwosu, 2010).
One of the sole objectives for the establishment of the ACGSF is to enhance the export
capacity of agricultural produce (Somayina, 1981). The ACGSF is aimed at guaranteeing
agricultural outfit that specializes in the following; agricultural outfit engaged in the
establishment and management of plantation for cash crop produce like rubber production, oil
palm extracting, cocoa plantation etc; agricultural outfit engaged in the cultivation and
production of food crops like fruit of all kinds, tubers of yam, cereals and all other food crops
and agricultural activities involved in the large scale production of animal husbandries. The
vast employment opportunity and the quest towards diversification of the revenue source by
the federal government and development agencies have shifted attention towards the informal
and the agricultural sector. For example, to sustain the agricultural production in Nigeria, the
World Bank developed a project called Agricultural Development Projects (ADPs) which
was designed to enhance the production of agricultural outputs in Nigeria.
There are four subsectors of agriculture in Nigeria. These are arable crops (including food
crops), livestock, fishery and forestry (including tree crops). Most of the researches
conducted in this area have dealt on the overall impact of the Agricultural Credit Guarantee
Scheme fund on non-oil export output (Somayina, 1981; Efobi, 2011 etc) and contribution to
Nigeria’S GDP (Nwosu, et al., 2010; Shaib, et al., 1997).
1.2 Statement of the Problem
Agricultural credit is expected to play a critical role in agricultural development (Duong and
Izumida, 2002). Agricultural credit has for long been identified as a major input in the
development of the agricultural sector in Nigeria. The decline in the contribution of the sector
to the Nigeria economy has been attributed to the lack of a formal national credit policy and
paucity of credit institutions, which can assist farmers among other things. The provision of
this input is important because credit or loan-able fund (capital) is viewed as more than just
another resource such as labour, land, equipment and raw materials. It determines access to
all of the resources on which farmers depend (Shephard, 1979). However, agricultural
productions have not improved and this lead to the establishment of the Agricultural Credit
Guarantee Scheme. The problems which inadequate credit through the scheme may have as
pertained agricultural productivity are;
1. Low agricultural cash crop productivity in Nigeria
2. Low agricultural livestock productivity in Nigeria
3. Low agricultural fisheries productivity in Nigeria and
4. Poor Agricultural productivity in Nigeria
In the course of the fund’s operations, a number of problems have been identified as
militating against its smooth performance, which have limited the funds contribution the cash
crop, livestock and fisheries agricultural subsectors which have lead to low agricultural
productivity in Nigeria. According to Akinleye et al (2005), some of the problems are:
increasing incidence of loan defaults, high rate of loan repayment by ACGS beneficiaries,
others are: natural disasters, poor farm management, low product prices, loan diversion,
deliberate refusal to pay and the inability of farmers to assess loan requirements properly
leading to farmers receipt of inadequate or excessive loans; Participatory banks in the ACGS
do not cooperate fully in lending to farmers. Because of the high cost of processing loans
relative to the actual loans and the high default, rate of the farmers, many banks prefer to pay
penalty to risk lending their funds to agriculture.
Also banks fault the farmers for submitting incomplete application forms. In some cases
where loans are approved, it arrives too late for it to fulfill the purpose for which it was
intended. This delay seems more of administrative than any other. Another problem that
militates against the smooth operation of the scheme is on “Personal guarantee” as a security


that may be offered to a bank for the purpose of a loan. “Personal guarantee” as a condition
was not explained in the decree. This therefore makes it almost nothing as its interpretation
rests on the bank officials. Also, the other securities recognized by the decree that could be
offered to the bank for the purpose of any loan under the scheme pose problems in the
smooth operation of the scheme. The securities are legal title to land, and a life assurance
policy. It is a common knowledge that most people especially in the rural areas do not have
clear titles to their land which could serve as collateral for loan under the scheme (Okorie,
1998). Finally, the ACGSF has the problem of publicity. Oguoma (2002) noted that there is a
low turnout of farmers in most states of the federation in patronizing the scheme because of
lack of awareness.
1.3 Objectives of the Study
The general objective of this study is to examine the impact of Agricultural Credit Guarantee
Scheme Fund on the agricultural production in Nigeria. The specific objectives therefore
include:
1. To examine the impact of Agricultural Credit Guarantee Scheme Fund on crop output
in Nigeria.
2. To examine the impact of Agricultural Credit Guarantee Scheme Fund on livestock
output in Nigeria
3. To examine the impact of Agricultural Credit Guarantee Scheme Fund on fisheries
output in Nigeria and
4. To examine the impact of Agricultural Credit Guarantee Scheme Fund total fund
granted on agricultural output and productivity in Nigeria.
1.4 Research Questions
Having considered the problems inherent in the grant of credit to the agricultural sector and
specifically the impact of Agricultural Credit Guarantee Scheme Fund towards agricultural
production, the following research questions were asked. These are;
1. To what extent does Agricultural Credit Guarantee Scheme Fund credit to the
agricultural cash crop sub sector have a significant impact on crop output in Nigeria?

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2. To what extent does Agricultural Credit Guarantee Scheme Fund credit to the
agricultural livestock crop sub sector have a significant impact on livestock output in
Nigeria?
3. How far does Agricultural Credit Guarantee Scheme Fund credit to the agricultural
fisheries sub sector have a significant impact on fisheries output in Nigeria?
4. To what extent does Agricultural Credit Guarantee Scheme Fund credit to the
agricultural sub sector have a significant impact on agricultural output in Nigeria?
1.5 Research Hypotheses
As a result of the of the research questions raised above, the hypotheses for this study are:
1. Agricultural Credit guarantee scheme fund does not have a significant positive impact
on cash crop output in Nigeria.
2. Agricultural Credit guarantee scheme fund does not have a significant positive impact
on livestock output in Nigeria.
3. Agricultural Credit guarantee scheme fund does not have a significant positive impact
on fishery output in Nigeria and
4. Agricultural Credit guarantee schemes fund does not have a significant positive
impact on agricultural output in Nigeria.

1.6 Scope of the Study
The research covers the period 1978 to 2008. The Agricultural Credit Guarantee Scheme
Fund (ACGSF) was established by Act 20 of 1977 but started operation in 1978. The
principal objective of the Scheme was to facilitate the provision of credit to farmers by
providing guarantees to participating banks known as deposit money banks (DMBs) for loans
granted to farmers in accordance with the scheme enabling act. Therefore, this research will
examine the impact of the scheme since it was established to 2008.
1.7 Significance of the Study
This study is bent on contributing to the literatures available in finance. It will go further in
establishing reasons why subsequent research in this area will contribute to the growth and
development of emerging markets like Nigeria. The following users will find this study
useful and pertinent;


i) Government
The government is keen on exploring ways by enacting policies that are in consonance with
the establishment and promotion of improved Agricultural productivity and output. Hence,
the government stands the better position of making sure that the growth of the economy is
taken into consideration to better the standard of living of its citizenry.
ii) Academic Purpose
An advancement of knowledge is achieved when series of research are being carried out in
the academic environment. Thereby the scope and horizon of the readers or researchers are
widened in order to achieve academic excellence through series of research, development of
the intellectual faculty and planning. This also led to the gathering and update in the volume
of literature for various field of study that are applicable majorly to finance students.
1.8 Definition of Terms
The following terms as they relate to this study is defined; these are:
Agricultural development: is a process that involves adoption by farmers of new and
better practices (Garba, 1987; Orebiyi, 1999).
Agricultural Credit: Credit that facilitates the acquisition and application of
state of the art technology and enables such enterprise to
be in the driving seat in technology application (World
Bank, 2000).
Agricultural Productivity: Increased in agricultural sector contribution to the Gross
domestic Product of the nation (Idachaba, 1995)

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