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The research was conducted to determine the effect of monetary and fiscal policy indicators on Nigeria’s agricultural output. The output considered were mainly cereals such as maize, sorghum, rice, millet and wheat while the monetary policy indicators studied were inflation, money supply, interest rate and savings. Budgetary allocation represents the fiscal component while inflation, savings, interest rate, money supply represented monetary policy indicators. One of the fundamental objectives was to examine the relationship between monetary and fiscal policy indicators on agricultural output. Multiple regression was used as the main analytical tool, and the result showed that money supply, budgetary allocation, interest rate were 94%, 54% and 82% significant in the order above i.e. they had significant relationship with output, while inflation and savings were not significant. The result also revealed that within the period of study, agriculture contributed 28% to 35% of the gross domestic product. Forestry and fisheries contributed the least, while crop and animal sub sectors contributed the highest.
Article Citation:
Okidim IA and Albert CO.
Analysis of the Effects of Monetary and Fiscal Policy Indicators on Agricultural Output (Cereal) (1990-2000).
Journal of Research in Agriculture (2012) 1(1): 058-064.
Full Text:
http://jagri.info/documents/AG0021.pdf
Titre original
Analysis of the Effects of Monetary and Fiscal Policy Indicators On agricultural output (Cereal) (1990-2000)
The research was conducted to determine the effect of monetary and fiscal policy indicators on Nigeria’s agricultural output. The output considered were mainly cereals such as maize, sorghum, rice, millet and wheat while the monetary policy indicators studied were inflation, money supply, interest rate and savings. Budgetary allocation represents the fiscal component while inflation, savings, interest rate, money supply represented monetary policy indicators. One of the fundamental objectives was to examine the relationship between monetary and fiscal policy indicators on agricultural output. Multiple regression was used as the main analytical tool, and the result showed that money supply, budgetary allocation, interest rate were 94%, 54% and 82% significant in the order above i.e. they had significant relationship with output, while inflation and savings were not significant. The result also revealed that within the period of study, agriculture contributed 28% to 35% of the gross domestic product. Forestry and fisheries contributed the least, while crop and animal sub sectors contributed the highest.
Article Citation:
Okidim IA and Albert CO.
Analysis of the Effects of Monetary and Fiscal Policy Indicators on Agricultural Output (Cereal) (1990-2000).
Journal of Research in Agriculture (2012) 1(1): 058-064.
Full Text:
http://jagri.info/documents/AG0021.pdf
The research was conducted to determine the effect of monetary and fiscal policy indicators on Nigeria’s agricultural output. The output considered were mainly cereals such as maize, sorghum, rice, millet and wheat while the monetary policy indicators studied were inflation, money supply, interest rate and savings. Budgetary allocation represents the fiscal component while inflation, savings, interest rate, money supply represented monetary policy indicators. One of the fundamental objectives was to examine the relationship between monetary and fiscal policy indicators on agricultural output. Multiple regression was used as the main analytical tool, and the result showed that money supply, budgetary allocation, interest rate were 94%, 54% and 82% significant in the order above i.e. they had significant relationship with output, while inflation and savings were not significant. The result also revealed that within the period of study, agriculture contributed 28% to 35% of the gross domestic product. Forestry and fisheries contributed the least, while crop and animal sub sectors contributed the highest.
Article Citation:
Okidim IA and Albert CO.
Analysis of the Effects of Monetary and Fiscal Policy Indicators on Agricultural Output (Cereal) (1990-2000).
Journal of Research in Agriculture (2012) 1(1): 058-064.
Full Text:
http://jagri.info/documents/AG0021.pdf
The research was conducted to determine the effect of monetary and fiscal policy indicators on Nigerias agricultural output. The output considered were mainly cereals such as maize, sorghum, rice, millet and wheat while the monetary policy indicators studied were inflation, money supply, interest rate and savings. Budgetary allocation represents the fiscal component while inflation, savings, interest rate, money supply represented monetary policy indicators. One of the fundamental objectives was to examine the relationship between monetary and fiscal policy indicators on agricultural output. Multiple regression was used as the main analytical tool, and the result showed that money supply, budgetary allocation, interest rate were 94%, 54% and 82% significant in the order above i.e. they had significant relationship with output, while inflation and savings were not significant. The result also revealed that within the period of study, agriculture contributed 28% to 35% of the gross domestic product. Forestry and fisheries contributed the least, while crop and animal sub sectors contributed the highest. 058-064 | JRA | 2012 | Vol 1 | No 1
This article is governed by the Creative Commons Attribution License (http://creativecommons.org/ licenses/by/2.0), which gives permission for unrestricted use, non-commercial, distribution and reproduction in all medium, provided the original work is properly cited. www.jagri.info. Journal of Research in Agriculture An International Scientific Research Journal Authors: Okidim IA and Albert CO.
Institution: Department of Agricultural and Applied Economics/ Extension. Rivers State University of Science and Technology-Nkpolu Port Harcourt, Rivers State, Nigeria.
Corresponding author: Okidim IA.
Email: carobinedo@yahoo.com.
Web Address: http://www.jagri.info documents/AG0021.pdf.
Dates: Received: 23 Feb 2012 Accepted: 07 Mar 2012 Published: 09 Apr 2012 Article Citation: Okidim IA and Albert CO. Analysis of the Effects of Monetary and Fiscal Policy Indicators on Agricultural Output (Cereal) (1990-2000). Journal of Research in Agriculture (2012) 1: 058-064 Original Research Journal of Research in Agriculture J o u r n a l
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A g r i c u l t u r e
An International Scientific Research Journal
INTRODUCTION According to Panda (2007), agriculture had suffered low productivity due to labour shortage as a result of labour drift from rural to urban areas. This drift may be due to low wages in agriculture, drudgery of farming, poor infrastructural facilities and other factors that include land tenure system, illiteracy and climate (rainfall, humidity, draught, temperature, light intensity). More often than not, the economic factors are ignored. The activities of the Federal Reserve System or the central bank may affect agricultural output e.g. interest rate may have direct or indirect effect on agricultural output (panda 2007). This is because farmers obtain credit or capital to facilitate the acquisition of inputs. If interest rate is low, more input will be procured, conversely, employment of labour inflation, investment in other sub sectors may also tend to affect output. Also in terms of employment, if there is an increase in employment in agro allied industries and agri business firms, output may increase. Meaning that if there is a proper management of macro-economic variables such as interest rate, employment in agro allied and agri business firms, inflation, savings etc by managers of monetary policies, there may be a positive effect on the output of agriculture. Literature Review In Nigeria, agriculture still remains the highest employer of labour and the only source of food (Panda 2007). In spite of its numerous contributions, the sector has still not paid the desired attention. According to CBN (1999) index on agriculture, production has increased by 3.6%. The inability of the real sector to contribute to the gross domestic product (GDP) is the major factor that is responsible for the sluggish growth of the sector (Nworguu 2004). Government at all levels (federal, state and local), allocate whooping sums of money to the agricultural sector, yet output has never been proportional to budgetary allocation (Horwite, 2002). The budgetary system has failed to carry out performance evaluation of previous budgetary allocations vis-a-vis the output. The GDP in 2000 stood at 117.95 billion, 2001 GDP was 122 billion, 2002 GDP was 127.72 billion, 2003 GDP was 135.95 billion, 2004 GDP was 144.84 billion (CBN 2002). The national output for maize, millet, sorghum, rice, wheat were 6,491, 9,743, 8,824, 3,841, 550 tones respectively (CBN, 2002). The money supply was 766.035 billion, while the interest rate was 21.52%. Problem Statement In 1980, the budgetary allocation of the agricultural sector was 435 million naira, while the allocation for 2003 was over eight billion (CBN 2003). This radical difference in the budgetary allocation has not reflected in the output. A critical look at the non proportionality between the budgetary allocation and output revealed that poor monetary policy management and inconsistency in government policy towards agriculture may be responsible for this condition (Jhangan 2008). Government can use the instrumentality of the monetary policy to influence employment, output savings, inflation, interest rate and money supply. They can do this through the expansionary and contractionary measures. Due to the large nature of the agricultural sector, it is decided that we examine how these monetary operations affect cereals (maize, millet, sorghum, rice, wheat) which are major staples in Nigeria. It is against this backdrop that this research is carried out to ascertain the effect of monetary policy operations on agricultural output using cereal as a case study. Objectives of the study Specifically, the study was set put to; 1 examine some monetary and fiscal policy indicators such as money supply, interest rate, inflation, savings as well as budgetary allocation; 2 determine the relationship between monetary and fiscal policy indicators and the output of cereals and 3 examine the output of major agricultural commodities. 059 Journal of Research in Agriculture (2012) 1: 058-064 Okidim and Albert, 2012 METHODOLOGY The study focused was on the entire Nigeria and not a particular state or region. The study covered a period of 21 years (1980-2000). The data for this research work were mainly collected from secondary sources, which include Central Bank of Nigeria (CBN) bulletin, journal, Federal Office of Statistics (FOS) and text books. Due to the large nature of agricultural output, only cereals (maize, millet, sorghum, rice, wheat) were conveniently selected. Data for this research were analyzed with the use of tables and regression analysis. The following model was built to establish a functional relationship as follows Y=F(X1+X2+X3+X4+X5) +U eq 1 Where; Y=Agricultural output (cereal) X1= inflation X2= Budgetary allocation X3= Savings X4= Monetary supply X5= Interest rate U= error term Eq 2 Y=BO+B1X1+B2X2+B3X3+B4X4+B5X5 where Y=General output of cereal B1=Maize B2=Millet B3=Sorghum B4=Rice B5=Wheat.
RESULTS AND DISCUSSION The relationship between output of cereals and inflation are shown in Table 1 Table 1 shows the output of cereals and inflation rate. The table shows that the inflation rate did not reveal a definite trend, it was 9.90%in 1980 and increased to 20.90 in 1981 then reduced to 7.70% and then increased to 23.20.i.e. the inflation was fluctuating up to 2001, but Journal of Research in Agriculture (2012) 1: 058-064 060 Okidim and Albert, 2012 Table 1: The relationship between output of cereals and inflation Year Inflation Rate Maize Millet Sorghum Rice Wheat
the output of cereal continued to increase from 1980 to 2001. Apart from wheat, that fell drastically from 515.00 tones to 57.00 tonnes from 1992 to 2001. Relationship between budgetary allocation (capital) and agricultural output Table 2 shows budgetary allocation to the agricultural sector and output. A critical analysis shows that from 1997 to 2003, there has been an appreciable increase in budgetary allocation to the agricultural sector, but output maintained the same level. e.g. maize maintained six million tones, rice maintained three million tones, wheat maintained 51000 tonnes, millet maintained between six and seven million tones. But budgetary allocation astronomically rose from six billion in 1997 to 57 billion in 2001 and 32 billion in 2002, but maize output maintained the same as well as rice and wheat although, there is an increase in output as budgetary allocation increase, but not as proportional. This was confirmed by the result of the regression showing a very weak coefficient of determination (R 2 ) of 54%. Relationship between savings and output Table 3 revealed that there was no definite relationship between savings and output. This is because in 1986, 1999, 2003, savings were negative, yet there were appreciable increase in output. The table did not show any trendy relationship between savings and output. The regression result also showed negative relationship between savings, maize, sorghum and wheat. Meaning that as savings increases, most output decreases. It is in line with theoretical expectation because savings is a withdrawal from the circular flow of income. The coefficient of determination R 2 was 33 showing no significant relationship. Relationship between money supply and agricultural output Table 4 shows money supply and output of cereal. The table revealed that there was a steady increase in money supply from 14.897 billion in 1981 to 766.035 billion in 2000. Also output of cereal increased within the period, although not as much as money supply except wheat in 1993 to 2000 that had a sharp decline. 061 Journal of Research in Agriculture (2012) 1: 058-064 Okidim and Albert, 2012 Table 2: Budgetary Allocation and Agricultural Output (#millions) Year Budgetary Allocation Maize Millet Sorghum Rice Wheat 1980 435.60 612.00 3,354.00 3,346.00 105.00 24.00 1981 775.10 720.00 2,687.00 3,364.00 158.00 26.00 1982 1,035.10 766.00 2666.00 3,740.00 212.00 26.00 1983 1,185.20 594.00 2,783.00 3,292.00 143.00 26.00 1984 252.50 2,055.00 3,349.00 4,608.00 157.00 27.00 1985 985.40 1,190.00 3,684.00 4,911.00 196.00 113.00 1986 892.50 1,336.00 4,111.00 5,455.00 283.00 132.00 1987 365.1 4,612.00 3,905.00 5,182.00 808.00 139.00 1988 595.7 5,268.00 5,136.00 7,265.00 2,081.00 565.00 1989 981.5 5,008.00 4,770.00 4,185.00 3,303.00 554.00 1990 1,758.5 5,768.00 5,136.00 5,367.00 2,500.00 554.00 1991 551.2 5,810.00 4,109.00 5,909.00 3,226.00 455.00 1992 763.0 6,840.00 4,501.00 6,051.00 3,260.00 515.00 1993 1,820.0 6,290.00 4,602.00 6,051.00 3,065.00 33.00 1994 2,800.6 6,902.00 4,757.00 6,197.00 2,427.00 35.00 1995 4,691.0 6,931.00 5,563.00 6,997.00 3,203.00 44.00 1996 3,892.8 6,217.00 5,803.00 7,514.00 3,122.00 47.00 1997 6,247.40 6,285.00 5,997.00 7,954.00 3,230.00 49.00 1998 8,876.60 6,435.00 6,328.00 8,401.00 3,486.00 51.00 1999 6,912.60 6,515.00 6,423.00 8,504.00 3,522.00 53.00 2000 5,761.70 6,491.00 9,743.00 8,824.00 3,841.00 55.00 Source: (1) Year Book Central Bank Year Book (2) Fed. Ministry of Agriculture The regression result also confirmed a strong and positive relationship with a coefficient of determination (R 2 ) of 94 % meaning that increase in money supply increase output. Relationship between interest rate and output Table 5 shows interest rate and output of cereals. The table showed that the interest rate was single digit from 1980 to 1983 as well as 1985. It rose to double digit Journal of Research in Agriculture (2012) 1: 058-064 062 Okidim and Albert, 2012 Table 3: Relationship between saving and output (cereals1000 tones) Year Saving Maize Millet Sorghum Rice Wheat 1980 11,189.10 612.00 3,354.00 3,346.00 105.00 24.00 1981 5,604.30 720.00 2,687.00 3,364.00 158.00 26.00 1982 4,237.10 766.00 2666.00 3,740.00 212.00 26.00 1983 3,607.50 594.00 2,783.00 3,292.00 143.00 26.00 1984 2,678.70 2,055.00 3,349.00 4,608.00 157.00 27.00 1985 3,944.50 1,190.00 3,684.00 4,911.00 196.00 113.00 1986 -1,494.70 1,336.00 4,111.00 5,455.00 283.00 132.00 1987 3,573.70 4,612.00 3,905.00 5,182.00 808.00 139.00 1988 361.10 5,268.00 5,136.00 7,265.00 2,081.00 565.00 1989 48,589.90 5,008.00 4,770.00 4,185.00 3,303.00 554.00 1990 61,785.20 5,768.00 5,136.00 5,367.00 2,500.00 554.00 1991 56,601.60 5,810.00 4,109.00 5,909.00 3,226.00 455.00 1992 57,119.10 6,840.00 4,501.00 6,051.00 3,260.00 515.00 1993 63,408.00 6,290.00 4,602.00 6,051.00 3,065.00 33.00 1994 63,405.00 6,902.00 4,757.00 6,197.00 2,427.00 35.00 1995 58,987.10 6,931.00 5,563.00 6,997.00 3,203.00 44.00 1996 173,984.10 6,217.00 5,803.00 7,514.00 3,122.00 47.00 1997 114,411.00 6,285.00 5,997.00 7,954.00 3,230.00 49.00 1998 216,394.90 6,435.00 6,328.00 8,401.00 3,486.00 51.00 1999 -168,126.10 6,515.00 6,423.00 8,504.00 3,522.00 53.00 2000 942,399.50 6,491.00 9,743.00 8,824.00 3,841.00 55.00 Source: FOS Lagos and CBN Annual Agricultural Survey Table 4: Money supply and agricultural output cereal Year Money supply Maize Millet Sorghum Rice Wheat 1980 - 612.00 3,354.00 3,346.00 105.00 24.00 1981 14,897.40 720.00 2,687.00 3,364.00 158.00 26.00 1982 15,548.10 766.00 2666.00 3,740.00 212.00 26.00 1983 16,894.00 594.00 2,783.00 3,292.00 143.00 26.00 1984 19,368.90 2,055.00 3,349.00 4,608.00 157.00 27.00 1985 21,600.50 1,190.00 3,684.00 4,911.00 196.00 113.00 1986 23,818.60 1,336.00 4,111.00 5,455.00 283.00 132.00 1987 24,592.70 4,612.00 3,905.00 5,182.00 808.00 139.00 1988 29,994.60 5,268.00 5,136.00 7,265.00 2,081.00 565.00 1989 42,220.90 5,008.00 4,770.00 4,185.00 3,303.00 554.00 1990 64,932.70 5,768.00 5,136.00 5,367.00 2,500.00 554.00 1991 86,932.00 5,810.00 4,109.00 5,909.00 3,226.00 455.00 1992 128,283.70 6,840.00 4,501.00 6,051.00 3,260.00 515.00 1993 192,458.00 6,290.00 4,602.00 6,051.00 3,065.00 33.00 1994 267,759.00 6,902.00 4,757.00 6,197.00 2,427.00 35.00 1995 295,211.00 6,931.00 5,563.00 6,997.00 3,203.00 44.00 1996 368,762.30 6,217.00 5,803.00 7,514.00 3,122.00 47.00 1997 431,196.60 6,285.00 5,997.00 7,954.00 3,230.00 49.00 1998 522,479.60 6,435.00 6,328.00 8,401.00 3,486.00 51.00 1999 633,086.00 6,515.00 6,423.00 8,504.00 3,522.00 53.00 2000 766,035.00 6,491.00 9,743.00 8,824.00 3,841.00 55.00 Source: FOS Lagos and CBN Annual Agricultural S
from 1986 to 2000, fluctuating between 11 and 25%, with 31% in 1993. Within this range of interest rate output of cereal rose from 1,336 tonnes to 6,491 tonnes for maize, 4,111 to 9,743 tonnes for millet and 5,455 to 8,824 tonnes for sorghum. This shows that output of cereal can still increase within an interest rate regime of between 11 and 25%. It confirmed the result of the regression that shows the coefficient of determination (R 2 ) of 82% showing a very strong positive relationship between output of cereal and interest rate Output of major agricultural commodities Table 6 showed the output of major agricultural commodities (crops, livestock, forestry, fishing). The table showed that within the period of study, agriculture contributed 28% to 35% of the gross domestic product. In 1981, the gross domestic product GDP from the agricultural sector was 57%, in 2000 it dropped to 35%. The table also showed that forestry has been static since 1981 to 2000 (no remarkable growth). While crop, livestock and fishing sub sectors grew tremendously.
CONCLUSION The study revealed that most monetary policy indicators such as savings and inflation do not have direct influence on agricultural output at the macro-level due to improper management policy. Although, increase in savings is seen to have reduced output of agriculture since it is a withdrawal from the circular flow of income (Jhangan 2008) The study also revealed conversely, that money supply in the form of loanable funds, interest rate and increase budgetary allocation have been seen to increase agricultural output if properly managed but if not properly managed, there will be no positive effect. This is because if there is an increase in money supply and the transactionary demand for money which is a function of interest rate and profit level are not well taking care-off they will not produce positive relationship. Finally, it can be summarized that monetary policy indicators can increase output of agriculture if properly managed through better policy frame work.
063 Journal of Research in Agriculture (2012) 1: 058-064 Okidim and Albert, 2012 Table 5: Relationship between interest rate and output (cereals1000 tones) Year Interest Rate(%) Maize Millet Sorghum Rice Wheat 1980 8.43 612.00 3,354.00 3,346.00 105.00 24.00 1981 8.92 720.00 2,687.00 3,364.00 158.00 26.00 1982 9.54 766.00 2666.00 3,740.00 212.00 26.00 1983 9.98 594.00 2,783.00 3,292.00 143.00 26.00 1984 10.24 2,055.00 3,349.00 4,608.00 157.00 27.00 1985 9.43 1,190.00 3,684.00 4,911.00 196.00 113.00 1986 11.50 1,336.00 4,111.00 5,455.00 283.00 132.00 1987 13.96 4,612.00 3,905.00 5,182.00 808.00 139.00 1988 16.30 5,268.00 5,136.00 7,265.00 2,081.00 565.00 1989 20.44 5,008.00 4,770.00 4,185.00 3,303.00 554.00 1990 25.30 5,768.00 5,136.00 5,367.00 2,500.00 554.00 1991 20.04 5,810.00 4,109.00 5,909.00 3,226.00 455.00 1992 24.76 6,840.00 4,501.00 6,051.00 3,260.00 515.00 1993 31.65 6,290.00 4,602.00 6,051.00 3,065.00 33.00 1994 20.48 6,902.00 4,757.00 6,197.00 2,427.00 35.00 1995 20.24 6,931.00 5,563.00 6,997.00 3,203.00 44.00 1996 19.20 6,217.00 5,803.00 7,514.00 3,122.00 47.00 1997 18.40 6,285.00 5,997.00 7,954.00 3,230.00 49.00 1998 18.30 6,435.00 6,328.00 8,401.00 3,486.00 51.00 1999 20.53 6,515.00 6,423.00 8,504.00 3,522.00 53.00 2000 21.32 6,491.00 9,743.00 8,824.00 3,841.00 55.00 Source: FOS Lagos and CBN Annual Agricultural Survey Source: FOS Lagos and CBN Annual Agricultural Survey. Recommendation A proper and long term policy framework be put in place by the apex bank or the federal reserve system to work with ministries of agriculture to ensure actual release and utilization of agricultural fund through the instrumentality of the budget.
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CBN. 2003. Annual report & Statistical bull.
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Panda SC. 2007. Farm management and agricultural marketing Kalyani Publisher, New Delhi. . Nworguu FC. 2004. prospect and pitfall of agricultural production in Nigeria .Blessed Publication, Nigeria.
Horwite PN. 2002. Monetary policy and financial system. Prentice Hall, New York.
Jhangan ML. 2008. The Economic of Development and planning Urimda Publication Ltd Delhi.