The Effect Of Monetary Policy On Agricultural Output In Nigeria

The Effect Of Monetary Policy On Agricultural Output In Nigeria

Chapter One

Preface

Background of the Study

The significance of husbandry in bringing about profitable growth and development of a nation can not be undervalued, the reason why a nation possesses sustainable food security, is because it produces enough food to feed her citizens and indeed export these goods to other indigent countries thereby generating foreign exchange which in turn increases the public income in the long- run. The agrarian sector serves all other sectors in the frugality especially the artificial sector. The problem facing the Nigerian agrarian frugality is shy capital and credit for launch- up, investment and expansion. Monetary policy through its influence on the fiscal sector of the frugality plays a major part in making credit available to the agrarian sector.

Monetary policy refers to the combination of measures designed to regulate the value, force and cost of plutocrat in an frugality. It can be described as the art of controlling the direction and movement of credit installations in performance of stable price and frugality growth in an frugality( CBN, 1992). Monetary policy in the Nigerian environment refers to the conduct of the Central Bank of Nigeria to regulate the plutocrat force which could be through discretional financial policy instruments similar as the open request operation( OMO), reduction rate, reserve demand, moral persuasion, direct control of banking system credit, and direct regulation of interest rate( Iyoha, 2002).

The Central Bank of Nigeria( CBN) derives its accreditation from the CBN Act of 1958. Section one of the CBN DecreeNo. 24 of 1991, stipulates that the top objects of the Bank shall be to issue legal tender currency in Nigeria; maintain external reserves to guard the transnational value of the legal tender currency, promote financial stability and a sound fiscal system in Nigeria, and act as banker and fiscal counsel to the Federal Government( CBN, 2006). thus the central bank is the top financial authority.

husbandry in the environment of the frugality is tied with the colorful sectors and is essential for generating broad grounded growth necessary for development. Agriculture is abecedarian to the food of life and is the bedrock of profitable development, especially in the provision of acceptable and nutritional food vital for mortal development, the sector is a catalyst and major source of raw accoutrements for the artificial sector and provides utmost of the staple food consumed by the 120 million Nigerians. Although developments in the oil painting sector have dominated Nigeria’s profitable scene since themid-1970s, the country remains principally agrarian. further than 70 percent of its population depends on husbandry, which contributes roughly 25 percent of GDP and 60 percent ofnon-oil exports.

Monetary policy facilitates the establishment of agrarian businesses through vacuity of credit and finance for launch- up, investments, and expansion. The CBN controls the vacuity of credit through financial policy instruments. These instruments affect agrarian affair through agrarian banks and other fiscal institutions. thus, in our study of agrarian affair financial policy is a veritably important factor.

Statement Of The Problem

Before the rapid-fire rise in oil painting import profit, Nigeria was a major exporter of agrarian yield, especially cocoa, groundnuts, cotton, win oil painting, win kernel, and rubber. Since also still both the volume and the range of agrarian exports has declined sprucely and agrarian significances have increased dramatically.

In addition, Nigeria no longer produces sufficient food for the country’s large and fleetly growing population. The average periodic rate of real affair growth for food crops fell to about 2 percent a time during the 1970s. Between 1970 and 1975, still, the affair of import crops dropped 17percent, the food import bill rose further than10-fold in 1970- 1980.

Low agrarian affair has a negative effect on the frugality as a whole, there’s a low product of goods for food and raw accoutrements for diligence. A major challenge facing Nigeria is the incapability to capture the fiscal services conditions of growers and agribusiness possessors who constitute about 70 percent of the population. growers need access to capital to buy land and outfit and to invest in the development of new products, services, product technologies and marketing strategies. Yet banks are frequently reticent to advance plutocrat to growers for agrarian enterprises due to the lack of creditability and collateral.

thus there’s need for a exploration in order to prompt necessary changes because conditioning of the financial authorities through financial policy affect the fiscal institutions and credit vacuity to the agrarian sector in no small measure this will further affect agrarian affair appreciatively.

Compass of Study

This exploration seeks to study agrarian affair and the how financial policy affects it. The study shall be made using secondary time series data, for a span of 26 times that’s from 1980 to 2006 which is sufficient and suitable for conducting a exploration, making new findings and applicable recommendations.

Objects of Study

The main objects of this exploration are as follows

1) To identify the financial policy instruments used to support the agrarian sector.

2) To examine the impact of high lending rate, cash reserve rate, agrarian credit guarantee scheme fund and plutocrat force on agrarian affair.

3) To find out if there’s a long- run relationship between certain financial channels and variables similar as real exchange rates, financial policy rate, private investments in husbandry, agrarian credit guarantee scheme fund, and agrarian affair.

Significance of Study

utmost inquiries on the Nigerian agrarian sector has not been specific enough in terms of laying emphasis on credit vacuity in relation to financial policy and the conduct of the Central Bank of Nigeria as it affects the pastoral planter and agrarian businesses, which affect the total agrarian affair in the frugality.

This exploration is specific, it emphasizes the effect of the government’s conduct through financial policy on agrarian affair, which will immensely contribute to current knowledge on the content under exploration.

Exploration Questions

1) What effect( s) will financial policy instruments have on agrarian affair?

2) How can we use liquidity rate, high lending rate, cash reserve rate, agrarian credit guarantee scheme fund and plutocrat force to enhance agrarian crop affair?

3) Is there a long- run relationship between real exchange rates, financial policy rate, private investments in husbandry, agrarian credit guarantee scheme fund, and agrarian affair?

Thesis of the Study

Ho there’s no relationship between liquidity rate, high lending rate, cash reserve rate, plutocrat force, ACGSF and agrarian affair.

H1 there’s a relationship between liquidity rate, high lending rate, cash reserve rate, plutocrat force, ACGSF and agrarian affair.

Ho there’s no long- run relationship between real exchange rate, MPR, investment, ACGSF and agrarian affair.

H1 there’s a long- run relationship between real exchange rate, MPR, investment, ACGSF and agrarian affair.

Methodology of the Study

A Descriptive Statistical Analysis as well as an Econometric Analysis using the Johansen cointegration test and a vector error correction system( VECM) were the styles employed to carry out an disquisition on the subject matter.

Data Sources

Data for this study is be attained from CBN Annual Report, Statement of Accounts( 2006), Statistical Bulletin( 2006) volume 16 and the United Nations Statistical Database.