Agriculture also called farming or husbandry is the rearing of animals and cultivation of land to produce food, biofuel and other products used to sustain life. Agriculture was the key in the rise of sedentary human civilization, whereby farming of domesticated species created food surpluses that nurtured the development of civilization. The study of agriculture is known as agricultural science. The history of agriculture dates back thousands of years, and its development has been driven and defined by greatly different climates, cultures, and technologies.

As confirmed by Ugochukwu (1999), agriculture is the first and most thriven occupation of mankind. From its early form of wild fruits, leaf, root, snail and insect gathering, fishing and hunting, to its present mechanized and almost automated form, it has undergone a lot of development

Okah (2007) conceived agriculture as the cultivation of land, raising animals for the purpose of production of food for man, feed for animals, and raw materials for our industries. It also consists of crop production, forestry, livestock and fishing. It is also essential for expansion of employment opportunity, reduction of poverty and improvement of income distribution,


speeding up industrialization and easing the pressure of balance of payments disequilibrium.

The role of agriculture in transforming both the social and economic frame work of an economy cannot be over emphasized. Anyanwu (1997) posits that ―agriculture has been the main source of gainful employment from which Nigeria nation can feed its population, providing the nation‘s industries with local raw materials and as a reliable source of government revenue. Corroborating the above is Reynolds(1982) who asserts that agricultural development can promote the economic development by increasing the supply of food available for domestic consumption and releasing the labour needed for industrial employment.

The major agricultural export commodities in Nigeria include cocoa, coffee, cotton, groundnut, groundnut oil, palm kernel, soya beans, ginger rubber, and chili pepper (CBN,2003). There are other commodities that are being demanded in the world market such as cassava and cassava products, banana, plantain and so on. The Nigerian economy until today is still dependent on primary products both as foreign exchange earner and as major component  of its gross domestic product (GDP). Olurosunsola (1996) attributes this to the fact that the main interest of the colonial masters was and still is the exportation of products needed for their home industries.


The continuous production and exports of the agricultural product played a dominant role in attracting foreign exchange to boost economic activities from independence to the early 1970s. Obadan (2000), observed that palm oil accounted for 96.4% of total exports earnings while non- oil export product accounted for 97.3% for total export then. He observed further that from the 1970s, the Nigerian economy became mono-cultural, having been transformed from one dependent on fairly diversified portfolio of agricultural products to an economy heavily dependent on crude oil for growth and sustenance. Oyo (1994) observed that the advent of crude petroleum production and related activities especially in the early 1970‘s changed radically the structure of Nigeria economy. The huge foreign exchange earnings from crude oil export encouraged importation of finished foods to the detriment of domestic manufactured ones, while the agricultural sector was rendered less competitive over time through over-valued currency, inappropriate pricing policies and scarcity of farm labour caused mainly by the migration of youth to urban areas in search of paid employment.

Nigeria‘s agriculture is divided into two types, the subsistence agriculture and commercial agriculture-: the subsistence agriculture is the type of farming which involves only the farmer and his family i.e the farmer produces for himself and his family with little or none to sell in the market. It is practiced in small scale system. It requires only a little amount of money to practice unlike


commercial farming that involves huge amount of money to operate. It does not require machinery or heavy equipment, since the land is very small and fragmented (Ameachi 2004).

The second type is commercial agriculture, and this is where a farmer produces his crops and sells them in the market. It is carried out in large scale with enough land and machineries. These machines are used in cultivating crops. It involves a lot of capital and time, and also increases the farmer‘s income.

Credit is considered as a catalyst that activates other factors of production and makes under-used capacities functional for increased production, Ijere (2013). Thus farm credit plays a crucial role in agricultural and rural development as it enables farmers reap economies of scale, venture into new fields of production, employ new technologies and empower them to provide utilities for a widening market.

Agricultural credit is often seen as any of several credit vehicles used to finance agricultural transactions, including loans, notes, bills of exchange and bankers acceptances. These types of financing are adapted to the specific  financial needs of farmers, which are determined by planting, harvesting and marketing cycles. Agricultural credit enhances productivity and promotes standard of living by breaking vicious cycle of poverty of small scale farmers. Adegeye and Ditto (2005) described agricultural credit as the process of obtaining control


over the use of money, goods and services in the present in exchange for a promise to repay at a future date.

Ogunfowora (2003) reported that credit is not only needed for farming purposes, but also for family and consumption expenses; especially during the off season period. Credit has also been discovered to be a major constraint on the intensification of both large and small scale farming (Von – Prischike 1991).

Nigeria is blessed with lots of natural and human resources, yet, the citizens live in abject poverty for several known and unknown reasons. The country discovered oil in 1959 at Oloibiri in today‘s Bayelsa State, over fifty years ago, but over 70% of the country‘s earnings come from oil, paying little or no attention to other sectors of the economy and that is why Nigeria is said to be suffering from the ―Dutch Disease‖.

Over the years, government has been able to come up with policies, schemes and palliative measures to assist rural farmers in enhancing productivity. Some of these schemes include the agricultural credit guarantee scheme established in 1977, the agricultural credit support scheme, commercial agriculture credit scheme and the licensing of Micro Finance Banks.

In agriculture, fund is needed to enable the farmer purchase more land, buy his inputs at the appropriate time and to pay for hired labour or farm machinery. Unfortunately, credits are not easily available for most of the


farmers because of collateral and other things that are usually required by the commercial banks and other credit institutions. This makes difficult for large scale agricultural investment in Nigeria.

With the recent move by the leading country of the world to diversify their economy, Nigeria is conscious of the danger signal this portray and this underscores the need to move away from total reliance on petroleum related revenues. These signals according to Soludo (2009) include the on-going global economic crisis that is threatening the growth and development agenda of the present administration, the crisis in the Niger delta which has interrupted petroleum operations in the past few years, and the frightening revelation that the United States of America, the highest buyer of Nigeria crude oil, Brazil and several other countries are seriously engaged in research for an alternative source of energy.

Hence, the need to diversify Nigerian economy, especially Agricultural sector that has for long, been neglected.

The structure of the Nigerian economy is multi-sector in which the banks and the agricultural sectors have roles to play. Long before now, the relationship between the banking industry and the agricultural sector in Nigeria has been a contentious issue. If one were to take a census of all the pronouncements on the matter by various governments since independence and classify them into those praising the efforts of the banking industry and those castigating them as


regards granting credit to agriculture may likely notice that the ratio of those in favour of the later will be in the ratio of four or more is to one. This could further be reflected in the legislation of governments and the directives of quasi government institutions like the CBN on the issue. The setting up of a wholly government owned bank in the name of the Nigerian Agriculture, Cooperative and Rural Development Bank (NACRDB) with an aim of solely lending to agricultural endeavours on short, medium and long-term basis is predicated on the philosophy that the mainstream banking industry does not adequately cater for the urgent need of credit required for rapid transformation of the agricultural sector of the economy.



Several researches have shown that Nigeria Is endowed with huge expanse of fertile Agriculture land, rivers, streams, lakes, forest and grassland, as well as a large active population that can sustain a high productive and profitable agricultural sector. Adubi (2000) admits that this enormous resource base if well managed could support a vibrant agricultural sector capable of ensuring self- sufficiency in food and raw materials for the industrial sector as well as, providing gainful employment for the teeming population and generating foreign exchange through exports.

In spite of these endowments, the sector has continued to record a declining productivity. The capacity of the sector to fulfill its tradition roles in


Nigerian economy has been constrained by various social-economic and structural problems such as: Unavailability of credits to local farmers; The discovery of oil (the oil boom of the 1970 created relative disincentives for agriculture in relation to other sectors of the economy); High interest rates on loans to farmers; Rural- urban migration; Ineffective institutions charged with policy implementations. Others includes: inadequate number of beneficiaries; interest rate problem; uneven distribution of agricultural credit; inadequate monitoring and evaluation; underdeveloped production base; weak agricultural policies; high default rate; and uncoordinated credit policies; inadequate generation of income and savings; unstable macroeconomic policies and transaction costs.

Not until recently, have government seriously thought and attempted to mobilize potential savings for the rural farmers. Commercial banks themselves have given little attention to the approval of loans to farmers for fear of defaults. Where credits are received from other sources apart from government and commercial lending, the interest rates have been too high. These reported high interest rates are stark realities to the peasant farmers. However, Ogunfoworaetal (1972:35) attributed most of the short comings on institutional credits in Nigeria to factors such as, ineffective supervision or monitoring insufficient funds, political interference, cumbersome and time consuming loan processing, large loan defaults and absence of financial projections. There is


thus the research need to examine the impact of and the financial market performance in terms of the spate of government intervention measures and how these have affected the credit access or constraint facing farm households in Nigeria.

This study intends to answer the following questions: How have  the credit institutions, especially commercial banks, been able to impact positively on the level of agricultural productivity in Nigeria amidst aforementioned problems? Is the high interest rate on loans given to farmers really preventing them from borrowing from credits institutions? Or are the commercial banks afraid of fraud, the risk of not paying them back the loans? Is inflation eroding the value of the amount of credit needed to boast agricultural output? Is market failure the problem of low productively in Nigeria Agricultural sector?



The broad objective of the study is to investigate the extent to which commercial bank credit had supported agriculture and agricultural output in Nigeria.

However, the specific objectives of the study are as follows.


  1. To determine the impact of commercial banks credit on agriculture and agricultural output in
  2. To determine the impact of interest rate on agricultural output in Nigeria


  1. To determine the impact of inflation rate on agricultural output


  1. To determine the impact of exchange rate on agricultural output







Following from the above stated objectives, the following null hypothesis are tested in this study;

  • Commercial banks credit has no significant impact on agriculture and agricultural output
  • Interest rate on bank credit to Agricultural sector does not have significant impact on Agricultural output
  • Inflation rate does not have significant impact on Agricultural output in Nigeria
  • Exchange rate does not have significant impact on Agricultural output in Nigeria






Agriculture is expected to make significant contribution to net foreign exchange earnings and enhance Nigerian economic growth. This study sets is to


reveal the important problems and prospect of the agricultural financing and economic growth in Nigeria. It becomes important to carry out a research on this area of study so as to suggest ways of combating the perceived problems of the peasant scale farmers, such as, loan procurement, and effective credit lending to the benefit of the local farmers. Also, it sets out to help proffer solutions to the problems being faced by the sector.

This study will serve as a good background for those intending to carry out further research work on related topics.






This is an investigation into the impact of commercial bank credit on the agriculture and agricultural output in Nigeria for the period 1980-2013.

                        LIMITATIONS OF THE STUDY


There are several limitations to the study of this work. Limitations include the unavailability of some vital materials as they are considered highly confidential by government agencies; time constraint; financial constraint and also library facilities have been very inadequate in journals.