THE POLICIES OF THE CENTRAL BANK OF NIGERIA AS THEY AFFECT AGRICULTURE

CHAPTER ONE
INTRODUCTION
1.1    BACKGROUND OF THE STUDY
Agriculture is defined as “the cultivation of land for the purpose of producing food for man, feed for animal and fibre or raw material for industrial companies.  It also includes the processing marketing of crops.  In other words, it embraces all activities involved in the primary and controlled production of plant and animals, such as fishing, forestry, farming, livestock, poultry and small scale industries connected with processing of agricultural products.
The agricultural sector forms the background of Nigeria economy dispute concerted effort in industrialization.  Agriculture occupies the pride place as the source of livelihood for over 70 percent of the population.  It is recognized as a pre-requisite to economic development.  With large scale dependence on agriculture for food, raw-material for industries etc, one would expect production to increase, rather it is disheartening to note that this is not the case.  Agriculture has suffered some neglects due to lack of investment since the inception of oil boom in 1970.  in fact, Nigeria is experiencing a dcline in the space of agricultural production in general, this situation is causing a great concern to the government.  Throughout the 1960s, Agriculture contributed 61.5%.  in the 1970s, it declined miserably be 2.3%.  this decline may be attributed to the domination of the nations export by oil since 1970 which accounted for 57.6% of total export income and rose steadily, attaining an overwhelming proportion of 98% in 1981.  as a result there was an absolute neglect in agriculture to both God (Gross Domestic Product) and export earnings which has been the major factor dictating the need to reactivate our agricultural products.  The need for this re-activaty and in effort to revamp this sector has been the reason for raising budgetary allocation in recent years to it.  It rose from 6% in 1970s to 22% in 1984.  this increase acts as incentive and motivation to farmers, but these farmers while engaging in these agricultural ventures are exposed to a lot of problem like diseases and pest attacks, fire destructions, industrial pollution, machinery breakdown and other problems.  To these problems, the farmers need some aids in solving or minimizing them.
Finance has been one of the most significant problems in the expansion of agricultural production.  This was as a result of the neglect of the agricultural sector following the oil boom of 1970s, when the oil sector become a major aspect of the Nigerian’s foreign exchange earning.  This contributed to the inadequate funding of the agricultural sector unlike before the boom.  Also the establishment of industries in the urban areas during the 1990 – 1994 National Development plan to boast industrialization drew the rural populace with constitute the farming population to urban cities for search of white color jobs.  A stage has reached, that average Nigerians are now underfed.  In the words of or P.N.C. Okigbo in 1990 “The average Nigerian consumed on the average, some 20.23 calories per day and 56.46 grammes of protein per day compared to the food and agricultural organization (FAO)minimum of 21.91 calaries and  53.8 grammmes of protein.  This the average Nigerian was and still, is among the worst fed in the world.
As a result of these situations; the successive Nigerian Governments showed concern over the decling situation of Agricultural production through policies and programmes aimed at revamping the agricultural production in attempt to encourage increase food production “The federal Government in 1993 tried the National Accelerated food production in programme (NAFPP) during the General Yakulu Gowon’s regime; Under the leadership of couneral Obasanjo, the Operation feed the Nation programme “(OFN) in 1976; Green Revolution came up under President Shehu Shagari and Rirectorate of food Road and Rural infrastructure under the regime of General Basangida regime.
Neither of these measures halted the Agricultural decline or any lasting effect on food production.  This is because “little or no meaningful attempt has been made to change the under developed status of the rural dwellers notwithstanding that these people constitute about 95 percent of the total population engaged in Agricultural in Nigeria.
It has been attributed that inadequate funding of agricultural project and programme has contributed in large measures to the government low production of Agriculture in Nigeria, and the government and other financial institutions forms the major sources of finance for Agriculture though policies and programmes.
Then what role and impact has the central Bank of Nigeria (CBN) as the bank at the apex of Nigeria Banking system, (Bank of last resort, bank to the government and Banker to other banks)” played to reinforce the government policies or revamp the agricultural sector of the economy.  The under – developed characteristic of the Nigerian economy has made the central Bank of Nigeria to be activity involved in the promotion of rapid economic development of other sector especially agriculture through its development roles unlike in developed economics where the role of central Bank is restricted to development of the financial system.
According to Dr Belshaw in his book entitled “Agricultural credit in economically under-developed countries he wrote that “in respect of agricultural credit, a central Bank has an important part to play by helping to establish, strengthen and promote the extension of commercial banking facilities and agricultural credit institutions.
Professor G. Nwankwo also wrote “it for instance mistaken to think and believe that only the function of a central Bank is to control or regulate the financial system; it was not conoinced nor thought to be an appropriate function that a central Bank also has to the task of developing the financial system if non existed and of organizing and mobilization of resources for development.
To this end, the central Bank of Nigeria embarked on some programmes and policies to curb the under economic development and low trend in agricultural production.  These policies include the following :
i.    The provision of credit to marketing board for the purchase of some agricultural produce for export.  This has become the sole responsibility of the central Bank of Nigeria since may 1968, when the commercial financial still was abolished by the federal Government.
ii.    The establishment of the Nigeria Agricultural Bank (NAB) in 1976, this Nigerian Agricultural co-operative societies, improve agricultural production and storage facilities and promote marketing of agricultural products throy liberal credits to farmers at softer terms.  The bank started with a capital of #6 million which has increased to #250 million in 1991 with the CBN contributing 40 percent while the Federal Government has 60 percent share.  The functions of the banks includes: grant in of loans to small and medium scale farmers.
iii.    The CBM also used another instrument in financing of agriculture, this is through its credit guidelines contained in its monetary and fiscal policies circulars which required the commercial banks to give preferential treatment to Agriculture.
iv.    The establishment of Agricultural credit Guarantee sheme fund (ACGSF) in 1977 by both the federal Government and the central Bank of Nigeria.  The Act provided #100 million subscribed by the federal government, and the CBN at the ration of 60 percent or #60 million to the federal Government, 40 percent or #40 million to CBN.  This is to grantee for loan default made by commercial banks to farmers for Agricultural purposes to the time of 75% of the default.  The CBN was also appointed the managing agent of the fund.
REVIEW OF RELATED LITERATURE
This research work in particular is very crucial one in any economy as it deals with policies of the bank at the apex of the banking system (the central Bank) and one of the most priority sector of Nigeria economy – the Agriculture sector.  As a result much ought to have been written on it by eminent school and schools of thought in the field of banking, finance, monetary economies and Agriculture, but only very few have dealt with the two aspect (CBN and Agriculture).
The policies of the central bank of Nigeria as they affect agriculture are mainly on the monetary programs, and fiscal policies.  However, the literature reviewed were the background of agricultural financing, importance, problems, establishment of the CBN  and its organization, roles and policies (fiscal and monetary policies) of the CBN in relation to Agriculture and its other policy instruments / programmes.