CHAPTER ONE
INTRODUCTION
1.1 Background
Information
Agriculture contributes immensely to the Nigerian economy in
many ways, namely; in the provision of food for the increasing population,
supply of adequate raw materials to growing industries, a major source of
employment generation, foreign exchange earnings; and provision of market for
the products of industrial sector (FAO, 2006). Over the years, the inability of
this sector to expand and as well contribute meaningfully to the growth of the
Nigerian economy may be due to inadequate financing. Also the problem of rapid
agricultural development in Nigeria indicates that efforts directed at
achieving expanded economic base for farmers were frustrated by scarcity of and
restrictive access to loanable fund (Nwankwor, 2013). One of the reasons for
the decline in the contribution of agriculture to the economy is formal
national credit policy that can assist farmers (CBN, 2010).
Agriculture, as a sector, depends more on credit than any
other sector of the economy because of the seasonal variations in the farmer`s returns
and a changing trend from subsistence to commercial farming (Mahmood, Khalid
& kouser, 2009). This is in view of the fact that credit plays an important
role in enhancing agricultural productivity, especially in developing countries
(Iqbal, Munir & Abbas, 2003). The unpredictable and risky nature of
agricultural production, the importance of agriculture to the national economy,
the urge to provide additional incentives to further enhance the demand by
lending institutions for appropriate risk aversion measures in agricultural
lending provide justification for the establishment of the Commercial
Agriculture Credit Scheme.
Consequently, provision of appropriate financial policies
and enabling institutional finance for commercial agriculture is capable of
facilitating agricultural development with a view to enhancing the contribution
of the sector in the generation of employment, income and foreign exchange
(Olomola, 1997). Although some specialized development schemes and intervention
programmes were initiated and implemented to boost agricultural development in
the last decades,
(both in the deregulated and regulated era), notably,
National Accelerated Food Production
Programme (NAFPP), River Basin and Rural Development
Authorities, Green Revolution Programme, Agricultural Development Programme
(ADP), and credit Guarantee scheme, the performance of the sector is still sub-optimal. Currently, agriculture
is still dominated by small holder farmers with low production capacity and
more than 90% of agricultural output is accounted for by households with less
than two hectares under cropping (Federal Ministry of Agriculture and Natural
Resources, 2008). At the current growth rate of the population of 3.0% per
annum, the population is expected to double from 140 million to 240 million by
2030, farming can never meet the need for adequate quantities of food, for the
teeming population.
Therefore in order to promote Commercial Agriculture in
Nigeria, the Federal Ministry of Agriculture and Natural Resource, in
collaboration with the Central Bank of Nigeria (CBN) introduced the Commercial
Agricultural Credit Scheme (CACS) in 2009. The main aim of the fund is to
complement other special initiatives of the Central Bank of Nigeria in
providing concessionary funding for agriculture such as the Agricultural Credit
Guarantee Scheme (ACGS) which is mostly for small scale farmers, Interest Draw
Back Scheme, Agricultural Credit Support
Scheme, etc.
The objectives of the scheme are:
To fast track development of the agricultural sector of the
Nigerian economy by providing credit facilities to commercial agricultural
enterprises at a single digit interest rate.
To enhance national food security by increasing food supply
and effecting lower agricultural produce and product prices, thereby promoting
low food inflation and to reduce
the cost of credit in agricultural production to enable
farmers to exploit the potentials of the sector.
To increase output, generate employment, diversify the
revenue base, increase foreign exchange earnings and provide input for the
industrial sector on a sustainable basis.