DETERMINATION OF THE INTEGRATION OF RICE MARKETS IN ENUGU STATE, NIGERIA

 

CHAPTER ONE

 

1.0                                               INTRODUCTION

 

1.1 Background                  

 

Despite the dominant role of the petroleum sector as the major foreign exchange earner, agriculture remains the mainstay of Nigeria’s economy (Oyejide 1986).  In addition to contribution to GDP, it is the largest non-oil export earner, the largest employer of labour, and a key contributor to wealth creation and poverty alleviation, as a large percentage of the population derives its income from agriculture and related activities (NEEDS, 2004). All over the world, the concept of evolving strategies for ensuring natural food security and sustainable livelihood especially for the developing countries has gained full prominence. In view of this, processing cassava into its derivatives for food and income has been the practice of many Nigerians in the rural areas. The current drive towards higher levels of commercialization of cassava processing under the presidential initiative on cassava requires that the scale of cassava processing be increased in Nigeria (Ekwe and Ekwe, 2005).

Cassava is one of the staple food crops grown in Nigeria. Nigeria grows 34,000 tonnes of cassava every year, which constitute the largest output of the crop from any country in the world (Adebayo and Sangosina, 2005). In 1982, Nigeria ranked number six in the world production of cassava with an output of 6.8 million tonnes per annum. Through the cassava multiplication programme (CMP) (1986-1996), Nigeria’s production of cassava increased from 41million tonnes in 2005 to 49million tonnes in 2008 (FAO, 2008).

Today the crop is grown in virtually all parts of the country and is now the focal food crop for foreign exchange earning (Isiorhaorja and Idoge, 2005). In Nigeria, cassava is consumed daily and sometimes more than once a day (Nweke, 2004) and it contributes more than 1000 calories per person per day to the diet of

many families. Cassava is consumed with a sauce made with ingredients rich in protein, vitamins and minerals. Some even eat cassava for breakfast, lunch and dinner (Haggblade and Zulu, 2003). In Nigeria, cassava is very important in the economy and nutrition of poor rural household (NRCRI, 1996). Cassava has other advantages such as ability to store well in the soil for several months as being tolerant to extreme conditions. This is why cassava has been called the “famine security crop” (Philip, 2005). Cassava is of two types; the bitter and the sweet cassava, and they contain cyanogenic glucosides, which break down into hydro-cyanic acid after it has been harvested. The acid makes raw cassava very poisonous for animal and human consumption. Processing of cassava is therefore important as means of removing this poison, increasing its palatability and the storage life.

Cassava processing is a household business as children help in peeling while the women are mostly engaged in the processing, which is done to stop physiological and microbial spoilage, reduce the cyanogenic glucosides content (Asiedu, 1989) and convert the roots to other products which are more acceptable.  However, several constraints affect cassava processing which limit the contribution of the crop to the nation’s economy (Hawn, 1989; Henry, 1999 in Adebayo and Sangosina, 2005). For instance, the cynide content in cassava is a major limiting factor to its utilization, but can be reduced by appropriate processing innovations, (Oyewole and Aibor, 1992). Lack of fund and inadequate storage facilities also affect its processing.

Products derived from cassava include gari, starch, tapioca, fufu, pellets, flour and chip. International Institutes for Topical Agriculture (2004) survey of cassava utilization found that 70%, 15%, 10%, 5% of farmers respectively make gari, starch, fufu and tapioca from cassava.

Gari is cream white granular flour with slightly fermented and slightly sour taste made from fermented, gelatinized fried cassava tubers. The processing of cassava into gari involves certain units of operation. Fresh tubers are peeled, washed and grated. The grated pulp is put in porous sacks, which are weighed down with heavy stones for 3-4 days to expel the water from the pulp while it is fermenting. In some areas, hydraulic jacks are used to expel the water from grated cassava. The dewatered and fermented pulps are sieved and the resulting fine pulp is toasted in a frying pan. Palm oil is sometimes added during toasting with constant stirring so as to present all granules to the heat, to prevent the pulp from lumping and burning. This has an additional effect of changing the color of the product from white to yellow (Alinor, 2002).

Fufu is another form of cassava derivatives. It is a fermented wet-paste made from cassava. It is an indigenous food of most Nigerians in the south. Fufu is processed from cassava by steeping whole or cut peeled cassava roots in water for a maximum of three to five days depending on the ambient temperature. During steeping, fermentation decreases the PH, softens the tuber and helps to reduce potential cynogenic compounds. When sufficiently soft, the roots are broken by hands and sieved to remove the fibers.

Cassava chips are another product of cassava. It is widely used in Nigeria especially in Enugu state. Fresh roots are peeled, washed, boiled in water and sliced into thin longitudinal slices (chips) with knife or cutter. The chips are then poured into a local basket and steeped in water for 1-2 days during which the water is changed once or twice. The chips can be consumed at this stage. Starch is another product of cassava. Cassava roots are peeled, washed and grated. The grated pulp is steeped for 2-3 days in a large quantity of water, stirred and filtered through a piece of cloth. The starch sediments are air-dried under shade. It is used for textiles and in plywood industries as adhesives (NRCRI, 1986). Pellet is obtained from dried and broken roots of cassava by grinding and hardening into a cylindrical shape. The cylinders are about 2-3cm long and about 0.4-0.8cm diameter and are uniform in appearance and texture; they are produced by feeding dried chips into the pelleting machine, after which the diameter are screened and bagged. During the processing of cassava flour, the residual pulp, which is separated from the starch in the screening process, is used as animal feed. The market for cassava can be divided into two categories namely the traditional food oriented market and the emerging market for industrial processed cassava products. The vast majority of cassava grown in Nigeria is processed and sold through traditional marketing channels, which are fairly well known.

Cassava is one of the major sources of energy in Nigeria. That is why it was chosen as one of the focal crops for improvement and development under the nation-wide Agricultural Development Programme (Isiorharoja and Idoge 2005). This, perhaps led to the pronouncement of a presidential initiative on the crop. In 2000, the President of Nigeria, Chief Olusegun Obasanjo announced the initiative to promote cassava as a foreign exchange earner in Nigeria in addition to satisfying the national demand. This is in line with the government policy to give agriculture the highest priority, to reduce poverty in the rural areas and to facilitate economic growth. The challenge of the initiative is to make Nigeria earn 5billion US dollars per year in value added cassava exports within three years, from year 2003 – 2006, (IITA, 2001). The diversification and expansion into new growth markets like ethanol, starch, livestock feed and household flour as substitutes for various imported items present real opportunities for income generation of the rural populace.

The initiative also seeks to develop and satisfy the huge untapped domestic market for cassava as raw materials in the industrial sectors as well as building capacity for export market (RMRDC, 2004).

The objective of the presidential initiative on cassava is to expand primary processing and utilization to absorb the national cassava production, identify and develop new market opportunities for import substitution and export, stimulate increased private sector investment in the establishment of export oriented cassava industries, ensure the availability of clean planting materials targeted at the emerging industries, increase the yield/productivity and expand annual production to achieve global cassava competitiveness for the development of the Nigerian cassava sector and integrate the rural poor especially the women and youth into the mainstream of  the national economy (IITA, 2001).The programmes or the initiatives are implemented through subcommittees drawn from the public and private sectors (Obasanjo, 2003). The ministry of commerce facilitated a trial export of 1000 tons of cassava chips to China in 2003.

However, to meet the volume of demand from China and perhaps other countries, the government through the ministry of commerce will have to invest extensively in bulking/storage warehouses. The Federal Government has to facilitate the revival of the railway cargo transport nation wide, in order to guarantee the availability of cargo volumes for export of the cassava products. This is critical for Nigeria to meet the target of the initiative, however government intervention and efforts of non-governmental organizations in the cassava sub sector had led to a number of measures that support the production of cassava and this date backs to 1986 (Bello, 2003).

The current drive towards higher levels of commercialization of cassava processing under the presidential initiative on cassava requires that the scale of cassava processing be increased and the profitability of the different derivatives tracked. This study will concentrate on three derivatives namely, cassava chips, flour and gari, because the presidential initiatives concentrates on them and they are the common derivatives on the study area.  Since processing of cassava is an income generating enterprise in Uzo-uwani, the profitability of the derivatives will be examined.

 

1.2 Problem Statement

Food security has continued to be a problem in many developing countries. It has been indicated that more than one billion people in the developing countries including Nigeria live below the poverty line and do not have enough food to meet energy and protein requirement for healthy and productive life (FAO, 1996)

Cassava is one of the major sources of energy and the multiplicity of its use makes it indispensable for food security (Asiedu, 1989). Cassava per capita consumption is of very high and provides 80 percent of the total energy intake of many Nigerian’s (FAO, 2002). Its importance forms the premise of the presidential initiative on crop, which is one of the major reforms in Nigeria’s economy from 1999. It is expected that returns from the exports of cassava derivatives especially chips will facilitate the realization of National Economic Empowerment and

Development Strategies (NEEDS) targets of $5 billion a year from agricultural exports.

However, several constraints affect cassava processing which limit the contribution that the crop makes to the nation’s economy (Henry, S.K, A. Westby and C. Collinson, 1999). The constraints include the following, lack of fund, inadequate processing and storage facilities and inefficiency in input supply and distribution, high cost of frying pans, inadequate know- how on processing and storage to enhance shelf life, high transaction cost, market uncertainty, inability of the processors to keep adequate records of production cost as well as the tedious operation technology (Bello, 2003).

It is documented that increasing hectarage, fallow length and use of organic and inorganic fertilizer increases cassava output (Isiohoraja and Idoge, (2005); Osugri 1996; Arene and Mkpado (2004). Very few works, example: Ekwe and Ekwe (2005), Alinor (2002), Oyewole and Sanni (1995) and Ayinde, I.A, O.F. Ashaolu, S.A. Adewuyi and M.U. Agbonlaho, (2005) examined processing and marketing of cassava products. The study by Ekwe and Ekwe (2005) concentrated on processing of cassava into gari and its marketing. There was no report on the marketing channel which should have given insight into the development of the processing enterprises and marketing margins associated with each channel.  Similarly the study by Alinor (2002) determined the profitability of processing cassava into gari and fufu in Nsukka and did not consider order derivatives like chips, and flour. Presently, the presidential initiatives on cassava concentrates mainly on export of cassava flour and its use in baking industry, production of starch and cassava chips as well as export of gari. The need therefore, is to document the present experiences of farmers in processing and marketing of cassava derivatives. With respect to rural economy, where most of the cassava productions take place and on which the Federal Government will rely to succeed in this reform initiatives, the questions are: which cassava derivative gives the highest revenue to farmers and what marketing channel should farmers adopt? This is because improving processing and marketing efficiency of cassava products will reduce food insecurity, poverty and enhance the success of the reform initiatives on cassava.

 

1.3 Objectives of the Study

The broad objective of the study is to compare the economics of selected cassava derivatives in Uzo-Uwani Local Government Area.

The specific objectives of the study are to:

1. describe the socio-economic characteristics of marketers of selected cassava

derivatives in the study area;

1. describe the methods of processing selected cassava derivatives;

iii. describe the marketing channels of selected cassava derivatives;

1. compare the return per naira of investment of marketing cassava flour, chips

and gari;

1. determine the cassava derivatives with the highest income;
2. estimate the factors affecting profitability of the selected cassava derivatives;

vii. identify constraints associated with processing and marketing of cassava

derivatives (flour, chips and gari)

viii. make recommendation for development of the presidential initiatives on

cassava.

 

1.4       Hypotheses

The following null hypotheses were tested:

1. There is no significant difference between the profit from marketing cassava

chips, flour and gari.

2. Profitability of cassava derivatives does not depend on the socio-economic

Characteristics of the marketers such as gender and marital status.

 

1.5       Justification

Cassava is one of the most important energy sources in the human diet in the tropics. It is an important staple, and cash crop that thrives where most other crops fail (Philip, 2005). Despite the rapid growth of cassava cultivation in Nigeria, processing and marketing are still constrained by certain factors namely; inadequate improved varieties, poor farm management which may not be good for export products, high pressure on land leading to cultivation of cassava on depleted soil, high cost of labor for all production processes, high cost of tubers from the production centers to processing sites and inadequate processing equipment (Bello, 2003).

Rural people even those in Uzo-Uwani make livelihood from processing of cassava into gari, fufu, tapioca, chips, for food and income. But the profitable enterprises that evolved from marketing of cassava derivatives are yet to be empirically documented. Also, the current NEEDS policy document highlighted cassava as one of the export crops of Nigeria, hence it’s enlisting as one of the presidential initiatives/strategies for realization of $5billion from cassava export in 2001(NEEDS 2003). Thus, the study of comparative economics analysis of selected cassava derivatives is necessary, because it will determine the derivatives that have the highest net income, the marketing channel, processing constraints as it affects processors and marketers as well as the exports potentials.

The findings from this study will help policy makers, researchers and processors to address the issue of cassava processing. The study is further justified because its findings and recommendation will benefit researchers as it will serve as a reference point for further studies, processors will be more informed on the profitability of the derivatives and hence in choice making

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EFFECTS OF MIGRANT REMITTANCES ON FARM HOUSEHOLD WELFARE IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1       Background Information

Remittances have been defined as the proportion of migrants’ earnings sent from their destination of employment to their origin or communities (Samal, 2006). As financial flows that do not require a quid pro quo in economic value, they can be termed transfer payment in Balance of Payment Accounting. Remittances are considered as compensation (brain gain) for the loss of human capital (brain drain) by a net labour exporting country (Ratha & Xu, 2006).  Relevant classification of remittances include: monetary versus non-monetary remittances; domestic versus international remittances, and inward versus outward remittances. The principal concern in this research is monetary- international-inward remittances to Nigeria. Domestic remittances will also be important elements of analyses.

Remittances are normal concomitant to migration which has been an integral part of human history.  For example, Italy enacted a law to protect her remittance inflows in 1901 and remittances were also vital in her post-1945 development (Miluka, Carletto, Davis & Zezza, 2007). In Spain,  rural banks and credit unions were formed after the second World War to receive much-needed foreign currency sent home by migrants working in the US and South America (Miluka et al, 2007). In recent history, declining wages, increasing unemployment and underemployment motivated further migrations of skilled and unskilled labour from the agrarian sector of the developing countries to the advanced world.

Globalization, accentuated by economic integration, collapse of many international trade barriers with a somewhat relapse of tight immigration laws made migration even more pronounced with a commensurate growth in remittances. Given their fast growths in the last 2 decades, remittances are now recognised as the foremost benefits of migration. They have also attracted attention in empirical studies with some concentration on their determinants and developmental impacts (Adenutsi, 2010). Also, a few multilateral, bilateral and governmental initiatives on remittances are emerging. Some of them are discussed in chapter 2.

Developing countries as a whole have consistently been the largest recipient of international remittances in the world. Formal remittance flows to this region is twice as large as Official Development Assistance (ODA) and nearly two-third of Foreign Direct Investment (FDI).  Between 1995 and 2005 the total amount of official migrant remittances received by developing countries increased by more than 300% (Adenutsi, 2010). Remittances to developing economies reach US$338 billion in 2008, higher than its estimated value of US$328 billion (World Bank, 2009). The actual total amount of migrant remittances received by developing countries is much higher. It is probably 2.5 times the amount of official flows since a significant amount of these transfers is likely sent through the informal channels (World Bank, n.d. as cited in Mutume, 2005).

Nigeria received US$1.92 billion as remittances in 1997, a value that is incomparable with the US$20 million received 20 years earlier (1977) (IFAD, 2006).  The country received 65 per cent of remittances to Sub Saharan Africa in 2000 (World Bank, 2002 in: Orozco, 2005), with most migrants sending between 2000 and 3000 US$ (20 and 30 per cent of their earnings) per year (Ruiz-Arren, 2006). Annual estimates exceeded $1.3 billion, ranking second only to oil exports as a source of foreign exchange earnings for the country in 1997 (Mutume, 2005). Nigeria was the sixth highest destination of remittances from citizens of developing nations in the diaspora (Mobile Money Africa, 2009). The nation received $3.3billion in remittances which accounted for 3.4 per cent of the GDP and seven times the value of ODA to the country in 2005 (IFAD, 2006). Nigeria ranked third largest recipient in Africa in 2006, receiving US$ 5.397 billion (36 percent of total remittances to the continent) (Ruiz & Vargas-Saliva, 2009).

Approximately 55 percent of total remittance flows to Nigeria come from the United States and 10 percent from the United Kingdom. Significant inflows also arise from Germany, Greece, Italy, Netherlands, Spain, South Africa and Ghana (Hernandez-Coss & Bun, 2007). The relative participation of Money Transfer Operators (MTOs) in the Nigerian remittance market include: Western Union (47 percent), Moneygram (35 percent) and Coinstar (17 percent) (IFAD, 2009). Eighty one percent of formal remittances coming into Nigeria are transferred through banks (IFAD, 2009). This creates incentive for savings by the unbanked remittance recipients. Bank bound remittances are also beneficial to the recipient households in terms of creditworthiness. Moreover, it places capital at investors’ disposal thereby contributing to national development.

Chami et al (2005) found that most migrants send money home for family maintenance based on altruistic motives; making family ties important motivations for remitting funds from abroad (as cited in Mallick, 2008). In contrast, migrants who invest the remittances on real estate or physical capital, do so with profit motive, and conform to the self-interest theory of remittances. Other variant theories of motivation to remit include:  implicit family agreement (co-insurance and loan), migrant’s saving target and portfolio management decisions.

 

Remittances have been found to be a more reliable and less variable source of funds from year to year than ODA and FDI (Ross, Forsyth & Hug, 2009 in Abdih et al, 2008). They provide a bottom-up approach to delivering resources to those who actually use them, and by-pass costly bureaucratic and administrative procedures associated with most development assistance. They are person-to-person flows, well targeted to the needs of the recipients, who are often poor. This makes remittances very important source of finance for the rural households traditionally known for high level of poverty and low access to foreign aid, government grants or bank loans. Remittances to rural areas are significant and predominantly related to intraregional migration in Africa. Two-third of Nigerians and other West African migrants in Ghana, for example, remit to the rural areas of their countries of origin (IFAD, 2010).

As Lennart Bage, the president of IFAD would say, “remittances represent a lifeline to struggling economies,”  during an economic downturn in the home country, increased remittances, an equivalent of a private “welfare payment” are sent from abroad to help smoothen consumption of the recipients (Martin, 2005). Welfare in this context represents wellbeing of remittance receiving households, measurable in terms of the total households’ consumption expenditure (Duong, 2003). Another definition of welfare which may be considered as a function of sustainability is relative poverty (Foster, Seth, Lokshin & Sajaia 2013). In this research, relative poverty was analysed from the perspective of consumption distribution.

It has been reported that remittances stimulate consumption and investment notably in sub-Saharan Africa and South Asia, as well as contribute to households’ welfare (Osili, 2007 & Siddiqui, 2008). Precisely 5.5% of the average household income in Nigeria was from remittances. And recipient households seem to have better access to food and nutrition than non-recipients households (Oseni & Winter, 2009 as cited in Babatunde & Martinetti , 2010). Also, 61 percent of a group of Nigerians in diaspora remit for sustenance of those at home (DFID, 2005), implying that remittances could alleviate food insecurity thereby enhancing the welfare of the households. This view is further warranted given that international remittances had ameliorative effects on rural poverty in Western Nigeria (Olowa & Olowa, 2008); and decreased income inequality in rural Nigeria (Babatunde, 2008).  This is corroborated by World Bank (2009) claim that meeting consumption needs including health care and education constitutes 80-90 per cent of remittance spending.

In spite of the fact that only 10 to 20 percent of remittance spending constitutes savings and investments whereas a whopping 80 – 90 percent goes for consumption spending (World Bank, 2009), remittance spent on consumption cannot be classified as unproductive. This is because remittance pushed consumption still leads to economic growth as consumption creates investment demand through its multiplier effect. Buttressing this fact are significant empirical evidences pointing out that remittances lead to positive economic growth, be it through increased consumption, savings or investment (Mallick, 2008). At the microeconomic level, for example, increased household spending on consumption in form of healthcare, schooling and housing can have important favourable effects on human capital and productivity. This implies higher labour efficiency and greater outputs for remittance receiving farming households.  Positive multiplier effects will also help to spread the benefits to non-migrants’ households. These ripple effects that impact the extended family and community beyond the receiving households, is due in part to the increased consumption. The combined effects of remittances on investment and consumption can further increase output and growth.  They can boost aggregate demand and therefore output and income with a multiplier effect as high as 1: 3 or even more (Van Doorn, 2003 as cited in Thao, 2009). Remittances can therefore be associated with better development outcomes.

Remittances also contribute to development by providing a stable flow of funds that are often counter-cyclical (i.e. they increase during times of economic downturn). They help poor families deal with negative economic shocks (World Bank, 2009). Remittances enable the hitherto risk averse farming households insured by remittances, to shift their portfolios towards riskier investments (Paulson & Miler, 2000 as cited in Chukwuone et al, 2007). By diversifying risk and relaxing liquidity and credit constraints through remittances, migration can be seen as part of a household strategy to overcome these restrictions, thus inducing productive investments (Miluka et al, 2007). Remittances are therefore an important informal insurance strategy.

Gender mainstreaming of remittances could have significant impact on the households as well as on the macro economy. IFAD (2007) found that slightly more women than men receive remittances, whereas average volume of remittances received was higher for men than women. Women spend most of their remittances on their families’ basic needs while men spend more on non-necessities (IFAD, 2007). However, if women succeed to cover basic consumption needs, education and health, they invest in building project or in land for agriculture (UN-INSTRAW, 2009). Nigerian evidence shows that although women may neither save nor invest remittance income as much as men, they use the funds to realise the welfare goals of the households than men. In a study of US-Nigeria remittance corridor, it was found that if the sender is a spouse of the recipient, the amount sent is on average 2.2 percent higher than the amounts sent by other family members and friends, with wives sending slightly more home than husbands (Orozco & Millis, 2007). Also poorer origin-families (often headed by women) in Nigeria received larger transfers (Osili, 2006).  Gender interactions are hence, a vital force in the concurrent realisation of the welfare and developmental goals of remittances in the agrarian economy.

Considering its beneficial impact on poverty and gender, remittances can foster the realisation of MDGs 1 and 3: to eradicate poverty and hunger; and to promote gender equality and empower women.  Although, remittances would not replace aids or credit schemes, they could be included in future NEEDS and SEEDS which are medium-term economic strategies for tackling Nigeria’s economic and structural problems and reduce poverty. In line with this idea, NEEDS document states that “if appropriate incentives are in place, the brain drain of Nigerians could be turned into a brain gain through increased remittances (Nigerian National Planning Commission, 2004). The lofty prospects enumerated about remittances can be brought to fore by policies that ensure the sustainability of its inflows. Sustainability here does not only mean stability of remittance flows, it also entails the inequality reducing effect and the spread of remittance outcomes beyond the recipients’ households thereby guaranteeing long-run impact”.

Sustainability of remittance flows will depend on the consideration of opportunities such as: strengthening the financial sector, banking in the rural areas, deregulating the remittance market (increase competition and lower costs), disseminating technology (SMS and Internet) to the rural remittance recipients, and leveraging the informal remittance transfer mechanism (Hanson, 2008). The informal systems of remittance transfer currently work efficiently and reliably, particularly for small transfers to the rural areas. Developing or integrating this system with the formal transfer mechanism will further promote remittance flows to the rural areas. There is need for greater involvement of credit unions, micro-finance institutions and migrant associations in leveraging remittances for development. Importantly, the preceding step will be to evaluate the present and potential welfare effects of remittances to assure us that these lofty policies are warranted. This research is therefore meant to begin the process.

 

1.2       Problem Statement.  

Osili, (2007) found that households domiciled in the Nigerian rural sector received significantly less remittances than their urban counterpart from the U.S.  More revealing is the fact that, only between 30 and 40 per cent of all remittances are destined to rural areas (Africa-Focus, 2010), whereas the greater per cent of the population dwell there. Such disparity in remittances distribution among household categories makes the effect of remittance on welfare inequality uncertain. Another issue is that women headed households do not always benefit substantially from the results of migration because newly created jobs stemming from remittances are often primarily for men, while women tend to be stuck in traditional forms of employment (Georges, 1990 as cited in Vargas-Lundius, 2004). Meanwhile, gender-based studies showed that the incidence of female-headed households was much higher in migrant families than among families without migrants (Torres, 2000 as cited Vargas-Lundius, 2004).

Therefore, skewedness of remittance distribution in favour of certain categories of households is a key challenge to the widespread of the effect of remittances. Hence, this research attempted to find out if skewedness actually existed in remittance distribution among Nigerian farm household categories with a view to addressing it.

Comparatively small consideration has been given to the question of how remittances are used by the households and the impact of the remitted money on the livelihoods of the migrants’ origin families. Particularly, the optimists’ philosophy about remittance impact may not hold in the agrarian sector because negative lost-labour effects of migration are likely to be concentrated in this sector, where most migrants are employed prior to migration (Lindley, 2008). This could be associated with the fact that positive remittance effects may manifest themselves in other sectors, where the returns from investing may be high and family labour demands low relative to agriculture.  However, remittance effects on household welfare remained a speculation in the rural Nigerian context.

Remittance effects remained a speculation because minimal research attention has been devoted to the welfare effects of remittance income in developing countries (e.g. works of Adams & Page, 2005; Adams, 2004, Guptal et.al, 2009), including Nigeria. Issues relating to remittances and welfare in Nigeria have been addressed to some extent by a few research works. Almost all of such works were enclave and do not clearly reflect the Nigerian situation.  Examples are works of: Olowa & Olowa (2008), Osili (2007), Babatunde & Martinetti (2010) and those of Nwaru, Iheke & Onyeweaku (2011). Chukwuoene, Amaechina, Iyoko, Enebeli-Uzor & Okpukpara (2012) did a comprehensive study covering Nigeria but it needs to be validated by a more recent study considering that data were derived in 2004. This study employed data from the

General Household Survey conducted in 2010/2011 in addition to the 2004 data.

Banks are the main entities allowed to perform remittance transfers in Nigeria. But the banks effectiveness in remittance distribution was questioned given itslow capitalization, inefficient management, and poor internal governance systems prior to 2005. Meanwhile, the effectiveness ofNigerian banking sector consolidation in 2005 which led to merger, recapitalisation and increased bank branches across the country in 2007 remained in doubt. Specifically, one of the key questions answered in this research was how has the role of remittances in welfare enhancement fared after the Nigerian banking sector policy of 2005?

Given the pooled sample of 24,009 households only 123 (0.5%) received international remittances and only 10 % (123) of the (1228) subsampled households were international remittance recipients. Analysis by other researchers in Nigeria and elsewhere present similar findings. For example, out of his sub-sample of 7931 households, only 0.37% (29) reported international remittances. Also, Ghanaian Living Standard Surveys showed that, 7.9%, 8.8%, 6.1% and 8.1% received international remittances in the period 1987/88, 1988/89, 1991/92 and 1998/99 respectively (Quartey, 2006). These statistics imply that relatively small proportions of populations receive remittances from abroad. Consequently, the main policy concern was “to what extent the huge sum received by few hands leads to increased welfare for the few recipients’ farm households as well as the mass of non-recipients farm households”. In other words “do the welfare effects of remittances (if any) spread beyond the remittance recipients farm households?” Interestingly, in contrast to this one, earlier works in Nigeria have not factored impact of international remittances on non-recipients households into their study of recipient households.

Although several studies as reviewed in chapter two portray that remittances reduce inequality of welfare, a few researchers including Adams (1991) and Taylor et al (2005) as cited in Quartey (2006) affirmed that remittances have positive effects on inequality. As a result, this study also attempted to answer the question, “do remittances reduce or enhance welfare inequality among farm households in Nigeria?”In an effort to answer this question Olowa & Olowa (2008) used Gini coefficient decomposition of inequality. However, Gini coefficient with an appeal for subgroup inequality decomposition at a medium level does not provide sufficient answer to the preceding research question. This work employed Theil Index with perfect decomposability which provided a clearer analysis of the inequality effects of remittances.

Finally, many researchers have a narrow definition of welfare and this misrepresents the results of most researches on welfare, this work adopts a broad-brush approach in the conceptualisation of welfare. It measured welfare by household per capita consumption; a sum of expenditure on households’ nutrition, health, housing, schooling, utilities, etc divided by the household size.

 

1.3       Research objectives

This study analysed the effects of migrant remittances on the welfare of farm household in Nigeria. In doing so, it:

1. compared volumes of remittances received by farm household categories;
2. analysed the effects of migrant remittances on farm households consumption;

• established changes in farm household’s consumption due to remittances after Nigeria’s bank consolidation policy;

1. estimated the effects of increased consumption spending by farm households who receive remittances on incomes of those who did not receive;
2. evaluated the effects of remittances on consumption inequality;

 

 

1.4       Research hypotheses

The overall hypothesis examined in this study is that migrant remittances do not significantly influence farming household welfare in Nigeria. To achieve this, the following null hypotheses were tested:

1. volumes of remittances received are not significantly different in households categories compared
2. farming households consumption is not significantly influenced by remittances received

• consumption of households due to remittances from abroad has not changed significantly after Nigeria’s Bank Consolidation

1. consumption spending by remittance recipientfarm households have no significant effect on non-remittance recipients farm households’ income.
2. remittances have no significant effect on inequality of consumption among the farm households.

 

1.5       Justification of the Study

World Bank (2008) submitted that Nigeria was the highest receiver of remittances in Africa and the thirteenth in the World. With US$3.329 billion remittances in 2005, Nigeria alone accounted for about 31% of total remittance flows to Sub-Saharan Africa. In 2006, Nigeria was the 3^rd largest single recipient of remittances (US$ 5.397 billion) in Africa, with most migrants sending between 2000 and 3000 US$ (20 and 30 per cent of their earnings) per year (Ruiz-Arren, 2006). Remittances accounted for 3.4 per cent of the nation’s GDP and 7 times ODA in 2005 (IFAD, 2006).  Nigeria received US$1.92 billion as remittances in 1997, a value that is incomparable with the US$20 million received 20 years earlier (1977) (IFAD, 2006). Consequently, studies analysing the welfare effects of these huge funds flow in the hitherto poor Nigerian agrarian populace is justifiable.

This study constitutes a building block to filling the research gap on the effects of remittances on household welfare in rural Nigeria. Importantly, the study derived policy implication of its findings and it is being made accessible to policy makers in conferences and scholarly journals. This work when published is meant to generate facts that will translate actions of policy makers from that of speculation that of decision making. It is meant to provide them insight on appropriate course of action with respect to harnessing remittances for development. Governmental initiatives on remittances in Nigeria may learn from the policy implications of the results of this research. The research findings could be adopted during the revision of policy documents such National, State and Local Economic Empowerment and Development Strategies (NEEDS, SEEDS and LEEDS). National Poverty Eradication Programme; National Agricultural and Rural Development Bank; and Small and Medium Enterprises Development Agency could leverage on the research findings to broaden their programme for the poor.

Desiring Non-Governmental Organisations, including Nigerian Diaspora Associations could garner understanding of the remittance mechanism from this work. In doing so, it will enable them channel their developmental contributions properly.  Bilateral agencies collaborating with Nigeria in harnessing remittance for development will make reference to this study for an explicit idea on impact of remittances on Nigerian rural households. Multilateral donor agencies such as World Bank, IMF, IFAD, UNDP, USAID, DFID, etc, will have additions to their information bank from these research findings. It will provide room for similar studies so as to compare or validate results before applying them in remittances linked programmes.

Empirical evidences provided by this study lay bare areas needing further analyses by development, financial, welfare and agricultural economists. Stakeholders and the academia will have opportunity to read, listen to and discuss the outcomes of this research in its oral defence, academic conferences and workshops. Key aspects of the final work will be published in scholarly journals with copies made available to the university as reference material for research purposes.

 

1.6       Limitations of the study

This research proposed to draw data from the Harmonised Nigerian Living Standard Survey (HNLSS) 2009/2010 because of it was the most recent national survey and sampled large cross section agrarian households across the nation. However, data from this survey was unavailable during the data collection phase of this research because of its prolonged data cleaning process by the Nigerian Bureau of Statistics. As way of handling this limitation a pooled cross sectional data were therefore drawn from two alternatives: the Nigerian General Household Survey-Panel conducted in 2010/2011 and the Nigerian Living Standard Survey done in 2003/2004.Pooling these two cross sections reduced the problem of limited data volume that using only one of them could have caused.

However, a challenge of pooled cross sections drawn at different time periods were issues of multicolinearity and autocorrelation but these was handled by the fact that the two surveys were conducted independently, making  the pooled data an ideal cross section. Analysing pooled data of two time periods often create bias with respect to monetary values. In order to handle this limitation all monetary values (per capita remittances, per capita consumption and per capita and per capita income) were converted into their real values using 2005 price index. Accounting for remittance effects is often constrained by the problem of endogeneity and selectivity. Therefore, the nearest neighbour matching was adopted in selection of the comparative group, the non-remittance recipient households

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Effect of FINTECH on agribusiness development in transition economy

CHAPTER ONE/ INTRODUCTION

 

Background to the study

In Nigeria, the government through the Central Bank of Nigeria has tried to achieve a financial inclusion as an integral part for promoting sustainable and inclusive growth by formulating policies that are expected to encourage country wide access to financial services at affordable cost particularly to the less privilege and vulnerable group Olatunji, (2015). The intent of these policies and mechanisms is to reduce the number of persons excluded from organized financial system by getting more people involved in the organized financial system. These consistent attempts to sustain and deepen financial inclusion have included the deployment of technological innovations in the financial sector

Technological advancements have evolved the social and economic landscape, evident from the emergence of industries like fintech. By properly leveraging modern technology’s financial and communication applications, agriculture, the oldest industry of human civilization, can experience rapid growth and sustainability. Again, with the financial technology accessible to Nigeria’s farmers, how has the employment of these technical tools affected agricultural productivity? On this note this research intends to measure the influence of financial technology on the productivity of small holder farmers.

The Nigerian economy was a predominantly agrarian one at independence in 1960, with agriculture contributing 63.8% to GDP, but the share of agriculture in output has dropped over the years. Agriculture contributed 41.2% to GDP in 1970, but this had dropped to 20.6% in 1980. Although it rose to 37% in 1990, it had fallen to 27% in 2000. New figures based on the rebased GDP show that agriculture’s contribution to GDP had fallen further to 23.8% in 2010, 20.2% in 2014 and 21.42% in 2018 (Central Bank of Nigeria, 2019). The primary trigger of the decline in agricultural output was the discovery of oil. The country has moved from being self-sufficient in food production to become an importer of food. In 1981, the value of Nigeria’s imported food and live animals was N1.8 billion, but this had surged phenomenally to N1.4 trillion by 2018 (Central Bank of Nigeria, 2019).

The 2006 population census put Nigeria’s population at 140,003,542, which makes it the country with the largest population in Africa. Nigeria occupies a land area of 923,768 kilometres, thus providing ample land for agricultural production. However, less than 50% of the cultivable agricultural land is under cultivation by small-holder farmers who use outdated techniques, thereby resulting in low yield (Manyong et al., 2005). The low yield of agricultural production is compounded by a variety of other problems such as poor access to modern inputs and credit, poor infrastructure, inadequate access to markets, land and environmental degradation and inadequate research and extension services (Manyong et al., 2005). These factors, combined with the diminishing income levels of agricultural households, have subsequently exacerbated poverty.

Low agricultural productivity has been identified as an important contributing factor to rural poverty in Nigeria (McKinsey Global Institute, 2014). Nigerian agriculture is characterised by low yields which reflect the dominance of small-holder farmers who lack knowledge about agricultural best practices and are unable to invest in seeds and fertiliser (McKinsey Global Institute, 2014, p. 17). Yield and fertiliser use in Nigerian agriculture are far below the global benchmarks in places such as China, Indonesia, Brazil, India and Ghana, and this is largely as a result of farmers’ lack of access to finance (McKinsey Global Institute, 2014, p. 17).

Although the share of agriculture in Nigeria’s GDP has fallen significantly, agriculture still remains an important source of livelihood for many Nigerians. Agriculture is the largest employer of labour, with 30.5% of employed persons engaged in agriculture (National Bureau of Statistics, 2010). There is an even greater percentage of young people engaged in agriculture, as 44% of youths are employed in agriculture (National Bureau of Statistics, 2013). Thus, agriculture features prominently in the lives of Nigerians, and there is hardly any family that does not have someone involved in agricultural activities.

However, despite agriculture’s prominence in economic activities and employment, the sector still suffers from a chronic inability to obtain finance from financial institutions. In the second quarter of 2019, agriculture received only 4.2% of commercial bank lending, while manufacturing received 15.3%, oil and gas received 22% and services broadly received 36.5% (National Bureau of Statistics, 2019). This suggests that agriculture is largely excluded from formal finance. This is supported by recent statistics which show that farmers are the largest group of financially excluded persons in Nigeria, as 37.6% of farmers are financially excluded (EFINA, 2017). Thus, agriculture is largely excluded from formal finance in Nigeria.

These facts highlight the supply shortfall in finance to agriculture in Nigeria which has contributed to the underinvestment in this sector recorded over the years. Availability of finance would go a long way in improving output and productivity in agriculture. Estimates suggest that availability of finance for African farmers could lead to an increase of over 300% of agricultural output, from $280 billion to $880 billion by 2030 (McKinsey Global Institute, 2010). Nigerian agriculture is dominated by small-holder farmers, who contribute over 75% to agricultural output. These small-holder farmers are characterised by simple techniques of production and bush fallow system of cultivation, thereby leading to low yields and minimal investment in seeds and fertiliser (McKinsey Global Institute, 2014; Aregheore, 2009). Availability of finance would go a long way in improving yields and output of Nigerian agriculture.

While considerable research has been conducted to examine how finance affects broad macroeconomic aggregates, little is known about the effects of finance at the household and individual level. Prior to this time, research has made use of variables measuring financial development, and there has been limited empirical research using variables measuring financial inclusion. This has largely been due to difficulties in measuring financial inclusion across countries and over time, while data are readily available on financial depth (CGAP, 2012). However, results from studies that make use of financial development measures cannot be generalised to cover financial inclusion. This is because, for example, high credit in a financial system could be skewed in favour of the wealthiest individuals and largest firms in the society, thus leading to a situation where the popular measures of financial development are capturing financial inequality, and not financial inclusion (GFDR, 2014). The implication of this is that financial depth and financial inclusion are distinct dimensions of financial development, and financial systems can become deep without delivering access for all (Demirguc-Kunt and Klapper, 2012). This has indeed been borne out by the data where use of formal accounts by the poorest group in the population is not correlated to private credit (Demirguc-Kunt and Klapper, 2012). Thus, it is important to explicitly account for financial inclusion when examining the effects of finance on individuals and households.

This study improves on existing research and offers new insights into the effects of financial inclusion on the economic activities of agricultural households in Nigeria. Since a large proportion of the Nigerian population is engaged in agriculture and are rural dwellers; and since there is a higher incidence of poverty in rural areas, an examination of agricultural households will be particularly insightful in understanding poverty in Nigeria. Also, rather than using broad macroeconomic measures of financial development, we will use new data that explicitly measure access to and use of financial services by households, thus providing a proper measure of financial inclusion. This study makes use of the Living Standards Measurement Study–Integrated Surveys on Agriculture (LSMS-ISA), which provides data on households, to examine how financial inclusion has affected agricultural productivity of households in Nigeria. This will provide important insight concerning whether financial inclusion affects agricultural productivity in Nigeria, and the results will prove useful in designing policies aimed at low agricultural productivity and ultimately poverty in Nigeria.

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