CHAPTER ONE

INTRODUCTION

1.1        Background of the Study

In sub-Saharan Africa, agriculture occupied a prominent position in national economies as the sector served as a key driver of growth, employment generation, wealth creation, food production, raw material supply, and poverty reduction (Ekpo & Olaniyi, 1995; Diaz-Bonilla

&    Gulati, 2003; Lawanson, 2005; Wankoye, 2008). Ajakaiye (1993), National Bureau of Statistics (2007), and Matthew (2008) attested to the potentials and indispensable roles of agriculture in Nigeria’s economy. The recognition of the role of agriculture in Nigeria’s economy informed the decisions of the Federal Government and donor and foreign agencies to marshal numerous interventions to the sector (Oyeyinka, Arowolo & Ayinde, 2012).

Some of the interventions, which aimed at mitigating financial constraints faced by farmers, included Family Economic Advancement Programme, Nigerian Agricultural Credit, Rural and Development Bank now called Bank of Agriculture, Agricultural Credit Guarantee Scheme Fund, Community Banks, Microfinance institutions, National Special Programme for Food Security and Fadama Development Programmes (Nweze, 1995; Ogbanje, Okwu & Saror, 2010). These efforts are justifiable given the importance of agriculture to both developed and developing countries of the world. For instance, it has been observed that the rapid growth of the newly industrialised economies of the Asian continent was directly associated with substantial growth of the agricultural sector (Kay, 2001). Wankoye (2008) was of the view that commercial agriculture is the most effective and sustainable catalyst that would lead to sustainable industrialisation. It follows that the need to increase farm income and agricultural productivity among small-scale farmers is sine qua non, if the farmers must maintain their national, though inadequately recognised role of feeding the nation.

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In Nigeria’s move towards agricultural renaissance, it is important to note that commercial farms are profitable only if they generate sufficient income (on and off-farm) and accumulate adequate capital for possible re-investment. In this direction, it is imperative for small-scale farmers to embrace farm diversification strategies as measures to curb declining farm and household incomes and to insure against agricultural production and marketing risks (Reardon, 1997; Amit & Livnat, 1988; Kijima, Matsumoto & Yamano, 2006; Matsumoto et al., 2006; Hazell, Syed, Zupi & Miyazako, 2011).

Off-farm income is that portion of household income which is obtained off the farm. It includes non-farm wages and salaries, pensions, trading and interest on income earned by farm families (Matthews, 2004). Off-farm income doubles as risk minimisation and household income stabilisation strategies. In the United States, for instance, off-farm income accounted for over 90 percent of farm operators’ household income (Sommer et al., 1997; Babcock, Hart, Adams & Westhoff, 2000; Briggeman, 2011). Ahearn and Lee (1991), Perry and Hoppe (1993), Blank, Erickson, Nehring & Hallahan (2009) and Briggeman (2011) asserted that several farms in the United States of America could not boast of favourable leverage ratio without off-farm income. In a developing country like Nigeria where agriculture has been relegated, and further worsened by flagrant diversion of agricultural intervention funds to unintended beneficiaries (Idachaba, 1993), off-farm activities deserve no less attention. Besides, Babatunde (2008) has shown that off-farm income supplements and boosts farm and total household incomes.

Off-farm work refers to activities from which farmers earn income apart from their own farm. In Mexico, De Janvry and Sadoulet (2001) clearly separated farmers into those who participated in off-farm work and those who did not. According to Babatunde, Olagunju, Fakayode and Adejobi (2010), the scenario, however, is different in rural Nigeria, where farmers engaged in several activities at the same time in a way that decisions to participate

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are not mutually exclusive. Off-farm engagement is generally disaggregated into three components. These are agricultural wage employment (AWE) involving labour supply to other farms, non-agricultural wage employment (NAWE) including both formal and informal non-farm activities, and self-employment (SE) such as own businesses. This typology has been used by Babatunde et al. (2010) and Ibekwe et al. (2010).

Myyra, Pietola and Heikkila (2011) affirmed that besides generating annual income, a farm family might have a goal to accumulate wealth through capital gains from off-farm activities. This is especially relevant for the about 900 million extremely poor people who lived in rural areas of developing countries. But, with little income or collateral, poor farmers were hardly able to obtain loans from banks and other formal financial institutions (Ochi & Nnanna, 2007; Asogwa, Umeh & Ater, 2007). Access to rural financial services is worse among women (Audu, Otitolaiye & Edoka, 2009) even though, women often had the best credit ratings and were more actively involved in agricultural production (International Fund for Agricultural Development (IFAD), 2000, 2003, 2004; Adepoju, Umar & Agun, 2006; Audu et al., 2009). The most effective way out of this contraption, according to IFAD (2004), is that the small-scale farmers need to be able to borrow, invest and save, and to protect their families against risk. According to Mellor (1962), Kibara (2007) and Petrick and Kloss (2012, rural financial capital improved agricultural productivity, food security and poverty profile. Osaka (2006) and Ogbanje (2010) noted that capital, including cash and other man-made farm assets that are required to carry out production, is usually accumulated through savings and investment.

Since formal credit facilities were unreliable, farmers have resorted to alternative measures to raise capital for farm investment. The two major alternative sources of farm capital for small-scale farmers were the numerous local savings’ schemes and involvement in off-farm activities (Adam & Agba, 2006; Alade, 2006; Ibekwe et al., 2010). In some contexts, rural

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off-farm activities are important sources of local economic growth (e.g. tourism, mining, and timber processing). Off-farm sector is of importance to the rural economy because of its production linkages and employment effects, while the income it provided to rural households could represent a substantial and sometimes growing share of farm capital (Alimba, 1995; Okorji, 1995; Okoye, 1995; Davis, 2003; Zeller, Schrieder, von Braun & Heidhues, 1997).

It has become widely accepted in academic and policy research that rural off-farm activities make up a significant component of rural livelihoods in developing countries (Chikwama, 2004; Bezabih, Gebreegziagher, GebreMedhin & Köhlin, 2010). Coupled with the increasing share of off-farm incomes, off-farm activities could no longer be considered as marginal. Relatedly, agricultural economies in transition are now gradually shifting toward a market economy and these shifts have been driven, in part, by push and pull factors (Vera-Toscano, Phimister. & Weersink, 2004). Reardon (1997) observed that households were pulled into off-farm activities when returns to off-farm employment were higher and less risky than in agriculture. Also, when farming became less profitable and more risky due to population growth and market failures, many households were pushed into non-farm activities. Nevertheless, many farm households in developing economies are yet to adopt market-oriented agricultural practices and, hence, are unable to enjoy the benefits of the market economy. As a supplementary measure, activities in the off-farm sector have witnessed a boom in the manufacturing, agro-based and service sectors (De Janvry, Fafchamps & Sadoulet, 1991; Ibekwe et al., 2010).

In addition to providing the much needed investment capital for the farm, off-farm occupation has been seen by some researchers as a risk minimising strategy which is important, especially, to the small-scale farmers. This is, indeed, a sound safeguard against crop failure and market failure (Ellis & Freeman, 2004; Babatunde et al., 2010). De Janvry

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