THE EFFECT OF INFLATION AND INTEREST RATE ON AGRICULTURAL PRODUCTIVITY IN NIGERIA FROM 2000-2015

CHAPTER ONE

INTRODUCTION

1.1      Background of the study

Inflation has been apparent in Nigeria from the outset of her national life as it was propelled in the 1960s through the “cheap money policy” adopted by the government to stimulate development after independence (Bayo, 2005). Nigeria has experienced all manners of inflationary episodes, from creeping to moderate and from high to galloping (Olubusoye and Oyaromade, 2008). Inflationary pressure in Nigeria was largely contained in 2010 and 2011, though the rate remained above the national and the West African Monetary Zone (WAMZ) single-digit inflation rate target (CBN, 2011). However, the 12-month moving average headline inflation rate was 10.8 percent in 2011, compared with 13.7 percent at end-December 2010. The agricultural sector is strategic to national economic development and contributes 42.1% of the current GDP (Eleri et al., 2012). It remains a major source of food and raw material for agro-industrial processing and has strong links to employment, national income, market opportunities for industrial production and strong potentials for poverty reduction and health improvement. However, Nigerian agriculture faces tremendous challenges which include the rising food prices amongst others. Food price inflation has risen in recent years because of many factors, on and off farms throughout the world (Oppedahl, 2009). The future direction of world food prices will depend on whether research and development increases agricultural productivity faster than the growth in world food demand. Key sources and features of recent increases of food prices in developing countries have been identified as being the underinvestment in agricultural innovation and rural infrastructure, shift of land and crops towards biofuel feedstocks, natural disasters, high global energy prices, unequal distribution of resources, mismanagement of natural resources, population growth and competition for land and water (Alam and Shahiduzzaman, 2008) Global food prices registered a new high in February 2011, rising by more than 30 percent year-on-year, underpinned by large increases in the prices of cereals, edible oils, and meat (ADB, 2011). While the recent price increases were triggered largely by production shortfalls due to bad weather, structural and cyclical factors that were at play during the 2007–2008, food crisis continue to be relevant, especially in the light of the strong recovery of many emerging economies from the global economic crisis. Inflation is undeniably one of the most leading and dynamic macroeconomic issues confronting most economies of the world and has become a leading topic of discussion in Nigerian families and press as its effects penetrate more deeply into nation’s life due to prevailing increase in prices (Olatunji et al., 2010). The consumer price index for food over the years in Nigeria constituted a larger proportion of the composite consumer price index and as noted by Oppedahl (2009), households in developing countries spend more on food relative to overall spending and therefore, food price inflation had played a bigger role in overall inflation. Despite the critical position of inflation in the macroeconomic environment of Nigeria, research efforts have not hitherto addressed the links between the direction of inflation, agricultural productivity and economic growth over the years in Nigeria and therefore, this study was carried out to the effect of inflation and interest rate on Agricultural productivity in Nigeria from 2000-2015.

1.2 STATEMENT OF THE PROBLEM

Inflation is undeniably one of the most leading and dynamic macroeconomic issues confronting economy of Nigeria and has become a leading topic of discussion in Nigerian families and press as its effects penetrate more deeply into nation’s life due to prevailing increase in prices (Olatunji et al., 2010). The consumer price index for food over the years in Nigeria constituted a larger proportion of the composite consumer price index and as noted by Oppedahl (2009), households in developing countries spend more on food relative to overall spending and therefore, food price inflation had played a bigger role in overall inflation. That is why the researcher wants to investigate the effect of inflation and interest rate on Agricultural productivity in Nigeria from 2000-2015

1.3 OBJECTIVE OF THE STUDY

The objectives of the study are;

1.   To ascertain the factors that affect agricultural productivity

2.   To ascertain the effect of inflation on Nigeria’s economy

3.   To ascertain the relationship between effect of inflation and agricultural productivity

4.   To ascertain the effect of inflation and interest rate on agricultural productivity in Nigeria from 200-2015

1.4 RESEARCH HYPOTHESES

For the successful completion of the study, the following research hypotheses were formulated by the researcher; 

H0: there are no factors that affect agricultural productivity

H1: there are factors that affect agricultural productivity

H02:there is no relationship between effect of inflation and agricultural productivity

H2:there is relationship between effect of inflation and agricultural productivity

1.5 SIGNIFICANCE OF THE STUDY

This study will be of significance to students of different higher of learning as it would enlighten them and the entire nation. Finally, this study will also help to serve as literature (reference source) to the public, individuals and corporate bodies into what to carry out on further research on the effect of inflation and interest rate on agricultural productivity in Nigeria.

1.6 SCOPE AND LIMTATION OF THE STUDY

The scope of the study covers the effect of inflation and interest rate on agricultural productivity in Nigeria from 200-2015. The researcher encounters some constrain which limited the scope of the study;

a) AVAILABILITY OF RESEARCH MATERIAL: The research material available to the researcher is insufficient, thereby limiting the study       

b) TIME: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.

c) Organizational privacy: Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities. 

1.7 DEFINITION OF THE TERM

INFLATION: Inflation is defined as a sustained increase in the general level of prices for goods and services in a county, and is measured as an annual percentage change. Under conditions of inflation, the prices of things rise over time. When inflation goes up, there is a decline in the purchasing power of money.

INTEREST RATE: Interest rate is the amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets. Interest rates are typically noted on an annual basis, known as the annual percentage rate (APR). Interest is essentially a rental, or leasing charge to the borrower, for the asset's use.

AGRICULTURAL PRODUCTIVITY: Agricultural productivity is measured as the ratio ofagricultural outputs to agricultural inputs. While individual products are usually measured by weight, their varying densities make measuring overall agriculturaloutput difficult.

1.8 ORGANIZATION OF THE STUDY

This research work is organized in five chapters, for easy understanding, as follows

Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study. Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding.  Chapter five gives summary, conclusion, and recommendations made of the study