CHAPTER ONE

INTRODUCTION

1.1        Background Information

Nigeria has been an agricultural economy since the colonial period up to the 1970s when we witnessed the oil boom. The agricultural sector contributed over 60% to the country’s Gross Domestic Product (National Technical Working Group (NTWG), 2009). From early 1970s to mid-1980s, rapid expansion of the oil sector played a role in eroding the competitiveness of agriculture. The nation grew to rely heavily on earnings from oil exports without making the investments needed to diversify the economy through sustained agricultural growth (NTWG, 2009). However, it has been realised that agricultural sector in Nigeria is currently a key sector that can address the multiple challenges which has kept the country from achieving broad-based economic growth, increasing household incomes, increasing employment, and reducing food/nutrition insecurity and poverty (Stakeholder’s Forum, 2009). The forum stated that agriculture provides 88% of non-oil foreign exchange earnings. According to NTWG (2009) and National Bureau of Statistics (NBS) (2013), agriculture contributes about 42% of Gross Domestic Product (GDP) as against 13-13.5% of Oil and Gas as well as employs two-thirds of Nigeria’s entire labour force.

According to Enete and Achike (2008), no less than a quarter of the world population belongs to the farm households. One way or another, their livelihoods depend on agriculture (Department for International Development (DFID), 2002). This is to say that agriculture and allied activities are the mainstay of the people living in rural areas (Pal and Biswas, 2011). According to National Planning Commission (NPC) (2004), the bulk of agricultural production in Nigeria takes place in the rural areas. Ogwumike and Akinnibosun (2013) stated

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that agriculture is the economic stronghold of majority of households in Nigeria and is the source of livelihood for about 90% of the rural population and provides raw materials for agro-allied industries. In addition, the rural farm households are the country’s major hope for sustained agricultural production as major investments in agriculture are targeted in arable lands in the rural areas.

Farm households have many challenges which include income variability (Adebayo, Akogwu & Yisa, 2012). This is because high levels of income inequality are likely to create a hostile atmosphere for economic growth and development (Adepoju & Oyewole, 2014). Enete and Achike (2008) asserted that unstable income of farm households could be accounted for by unfavourable weather changes, outbreak of plague, pollution in coastal waters, eruption of negative externalities, and other uncertainties which pose threats to farming activities and yields, thereby causing income to fluctuate erratically. The continuous increase in the rate of poverty in Nigeria and the dwindling nature of income of individuals has made and still make people look elsewhere for succour through income diversification (Adeyemi, Ijaiya & Ijaiya, 2007; Ijaiya, Ijaiya, Bello, Ijaiya & Ajayi, 2009; Adebayo et al., 2012). There has been a drive on the part of a vocal contingent of consumers, producers, researchers and policy makers who call for a transition toward a new face of agriculture. Within this vision, diversifying income with respect to farming system has emerged to maintain ecosystem services critical to agricultural production (Bowman & Zilberman, 2013).

Most rural households in developing countries are undergoing the process of diversifying their income sources (Zhao & Barry, 2013). Delgado and Siamwalla (1997) and Gomes and Livdan (2004) opined that rural households adjust their activities to exploit attractive new productive opportunities. Rural households in many different countries have been found to diversify their income sources allowing them to spread risk (Ellis, 1998, in Ibrahim, Rahman, Envulus & Oyewole, 2009). The food crisis experienced in 2006 which soared in 2007 (Stakeholders Forum, 2009) seemed to have driven Nigeria to delve into

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diversification. Several researchers maintained that these adjustments in agricultural activities are found to have an important impact on income, income distribution and welfare across rural households (Ellis, 2000a; Reardon, Taylor, Stamoulis, Lanjouw & Balisacan, 2000; Block & Webb, 2001; Hoogeven, 2001; Canagarajah, Newman & Bhattamishra, 2001 and de Janvry & Sadoulet, 2001).

Income diversification is a form of risk management strategy aimed at cushioning the effects of shocks (economic and agro-climate), poverty reduction, reduction in income inequality, production instability and overall improvement in the standard of living of the people (Barrett & Reardon, 2000; Abdulai & CroleRees, 2001; Barrett, Reardon & Webb, 2001; Deininger & Olintro, 2001; Little, 2001; Woldenhanna & Oskan, 2001; Adugna, 2006; Minot, Epprecht, Anh & Trung, 2006). Abdulai and CroleRees (2001) maintained that income diversification is the allocation of productive resources among different income generating activities, both on-farm and off-farm. Some researchers asserted that income diversification involves adding income-generating activities including livestock, crop, non-farm and off-farm activities (Barrett, Bezuneh & Aboud, 2000; Barrett et al., 2001a; Kydd, 2002; Reardon, Berdegue, Barrett & Stamoulis, 2006). Income diversification among rural farmers is geared towards improving their household livelihood (Dixon, Gulliver & Gibbon, 2001). More comprehensively, Minot et al. (2006) stated that income diversification has been used to describe four distinct but related concepts. One definition refers to an increase in the number of sources of income or the balance among the different sources (Joshi, Gulati, Birthal & Twari, 2003; Ersado, 2003; Ijaiya et al., 2010). A second definition concerns the switch from subsistence food production to commercial agriculture. This also implies an increasing mix of income activities on the farm. Third, income diversification is often used to describe expansion in the importance of non-crop or non-farm income. Fourthly, income diversification can be defined as the process of switching from low-value crop production to

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higher-value crops, livestock and non-farm activities (Ibrahim & Onuk, 2009). High-value crops are defined as crops that generate high economic returns per unit of labour or land.

The literature on income diversification varies in its use of terms such as “on-farm”, “non-farm” and “off-farm” (Barrett et al. 2000b). Terms like off-farm and non-farm incomes have been used at first glance in a synonymous way with slightly different definitions (Schwarze & Zeller, 2005). Barrett et al. (2000c) pointed out that the terms “off-farm”, “non-farm” and “non-agricultural” are used in seemingly synonymous ways but actually refer to very different settings under which activities take place. Kim (2011) affirmed that farm diversification refer to farm activities and off-farm diversification refers to seeking business or employment opportunities other than traditional crop production and livestock rearing and it relates to agriculture as it includes processing and trading of agricultural produce. According to Reardon et al. (2000) and Escobal (2001), nonfarm diversification includes off-farm wage labour and nonfarm self-employment. Barrett et al. (2000b) and Ellis (2000a) stated that “farm/nonfarm” distinction revolves around sectoral classifications (primary, secondary and tertiary sectors); where farm activities are associated with primary sector production while nonfarm activities are associated with secondary and tertiary sector production. “On-farm/off-farm” distinction reflects the spatial distribution of activities, with off-farm income generated away from one’s own farm.

According to Enete and Uguru (2012), agriculture in the developing world remains one of the most vulnerable sectors as a result of climate change. Changes in precipitation patterns and rises in extreme weather events increase the likelihood of production failures and overall production declines. Income diversification is often necessary in agriculture-based peasant economies because of risks such as variability in soil quality, crop diseases, animal diseases, price shock, unpredictable rainfall and other weather-related events (Ibrahim et al.,