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 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 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 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.

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 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 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-income. Fourthly, income

diversification can be defined as the process of switching from low-value crop production to 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-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”, “nonfarm” 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 offfarm 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-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., 2009). Kwadwo and Samson (2012) reiterated that climate change could substantially reduce yields from rainfed agriculture in some countries. Therefore, diverse agricultural activities which are able to combat these problems in Nigeria have been sought after. The farm and non-farm sectors have been changing in structure through diversification of activities on one hand and through increasing employment and income generation on the other (Pal & Biswas, 2011). Whether the two sectors are complementary or substitutable in the context of overall economic development is an issue attracting the interest of recent researches.

Diversification has been analysed as a rational response by households to lack of opportunities for specialisation, though was initially considered not the most desirable option (Warren, 2002). Ellis and Freeman (2005) indicated that rather than promoting specialisation within existing portfolios, upgrading them through diversification could be more realistic and relevant to sustain agriculture. But Kimenju and Tschirley (2011) argued that to achieve rapid growth in rural areas and the economy as a whole, it is widely recognized that countries must go through an agricultural transformation, which involves more specialization by rural households, not more diversification.

Resolving this tension between the clear benefits from diversification to rural households in the short- and medium-term is a major policy challenge to Nigerian government (Olugbire, Falusi, Adeoti, Oyekale& Adeniran, 2011). Diversification is being advocated in many parts of rural Nigeria today to ensure food security. Hence, the need to investigate into the income diversification decisions among rural households.

1.2 Statement of the Problem

Nigeria’s agricultural sector has a high potential for increased growth, but this potential is not being fully realised. Agriculture still suffers from a wide range of distortions and influences that limit its contribution to food sustainability. Nigeria Bureau of Statistics

(2013) maintained that agriculture is the largest sector of the economy, yet the fastest growing segments are wholesale, retail trade and telecommunication. Income instability has been a major challenge to the rural farming households and this has adversely affected agricultural productivity. Hence, there is need for a coherent action at all levels of farming activities of the households in order to stabilise her reportedly very volatile income.

Most Nigerian studies on income diversification focused on non-farm diversification

(to mention a few: Okali, Okpara &Olawoye, 2001; Babatunde &Qaim, 2009; Ibrahim &

Onuk, 2009; Ibekwe et al., 2010; Ijaiya et al., 2010; Idowu, Banwo&Akerele, 2011; Adebayo et al., 2012; Tasie, Offor& Wilcox, 2012). On the other hand, few studies within the past ten years have been carried out on income diversification with respect to farm and farm-related activities only. These studies highlighted farming as an occupation of rural farmers but very few considered the factors driving the farmers’ decisions to diversify income among various farming activities. Again, income diversification has received minute attention in agricultural economics and extension literatures in Nigeria (examples: Enete&Achike, 2008; Babatunde &Qaim, 2009; Ibrahim, Rahman, Envulus&Oyewole, 2009; Ibrahim &

Onuk, 2009; Idowu, Aihonsu, Olubanjo& Shittu, 2011; Adebayo et al., 2012; Adepoju&Oyewole, 2014). The existing literature is somewhat deficient in well-established principles on the use of indicators to capture observed rural income diversification (Ijaiya et al., 2009).

Perhaps, households that have more assets should be less risk averse and more willing to participate in market production, while households with fewer assets are more likely to settle for subsistence production in a desire to avoid high transaction costs in selling crops and buying food (Olale&Nazli, 2010). The researcher’s interest here is whether the decisions they take is in the best pursuit of improving the general economy and rural economy in particular. Understanding the decisions of  households with regard to how they allocate their income among various farming activities is crucial for adjusting farming and rural policies. Babatunde and Qaim (2009) affirmed that more research is needed to understand what conditions lead to what outcomes in order to identify appropriate policy responses. Hence, the gap this study seeks to fill is to highlight the key factors driving rural households in their decisions to diversify income among alternative farming activities (on-farm diversification). This constitutes the problem of the study

1.3 Objectives of the Study

The broad objective of the study was to examine the on-income diversification decisions of rural households in Yola metropolis. The specific objectives were to:

1.    describe the socio-economic characteristics of residents in the study area.

2.    identify the various sources of residents income of the rural households.

·         determine the factors influencing the choice of income sources.

1.    determine the level of gender participation in income diversification decision making.

2.    examine the constraints in raising income from the various sources of

1.4       Hypothesis of the Study

Based on the specific objectives of the study, the following hypothesis was tested:

Ho:  Socioeconomic characteristics of residents have no significant effect on their choice of income sources.

1.5       Justification of the Study

The study of on-income diversification decisions in an agricultural state such as Yola is important for several reasons. Firstly, Yola is an agrarian state with majority of its population engages in agriculture to earn a living (Egboke, 2004). Secondly, diversification choices are supposed to reflect optimal strategies followed by households in order to balance their expected returns with the related risk exposure they face. Démurger et al. (2010) foretold that since all diversification strategies may not be equally lucrative, understanding both the incentives and the constraints that rural households face in their decision between alternative options can offer important insights as to what policy might effectively improve the rural poor access to higher return activities. Thirdly, diversification choices reflect the allocation of household assets and the allocation of household labour resources across various activities.

In this rationale, this study has provided interesting and useful information for individual farmers, government, non-governmental organisations (NGOs) and agro-based industries. This study has contributed to literature by highlighting a variety of channels for diversification decisions. Farmers will be able to determine if they will gain or lose out in the process of diversification and understand how to manage diversification alternatives properly. It is also hoped that the findings of this study would be considered by the various teams of experts and consultants now assisting African countries to reach a higher path of economic growth through agriculture-led development for rural population under the Comprehensive African Agriculture Development Programme (CAADP) agenda.

1.6 Limitations of the Study

During the course of the study, there were challenges which ranged from dialect barrier, unwillingness of some rural farmers to fill the questionnaire or to be interviewed, low record keeping and financial constraints. The validity of the information given largely depended on the perception of the respondents on the issues raised in the questionnaire which influenced the quality of the information obtained from the farmers.

Through the help of research assistants, the researcher was able to collect sufficient information required to achieve the objectives of the study. However, extra efforts were made by the researcher to cross-check responses and discard the invalid questionnaire.

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