ANALYSIS OF THE IMPACT OF PHYSICAL AND SOCIAL CAPITAL ASSET HOLDINGS ON POVERTY AMONG FARM HOUSEHOLDS IN NIGERIA

ABSTRACT

The study was conducted to analyze the impact of physical and social capital asset holdings on poverty among farm households in Nigeria as a contribution towards finding a panacea to the poverty plague in the agricultural sector. The study used secondary data obtained from the Nigeria living Standard Survey data conducted in 2003/2004. Data were analyzed using descriptive statistics, Forster-Greer- Thorbeck  poverty  measures  and  Propensity  score  matching.  Results  showed  that  90%  of  the households were headed by males, 54% had household sizes of 1-4 and 79% were within the active productive age of less than 60 years while 62% had no formal education. About 96% were married whereas only 18.83% of the married household heads engaged in polygamous marriage. About 92% owned land.  Specifically,  16.4% owned less than 1 hectare of land, 64.3% owned between 1-4.999 hectares  while  19.3%  owned  5  hectares  and  above.  The  incidence,  gap  and  severity  of  poverty decreased with larger areas of land. Only 47% had agricultural equipment. Shockingly, about 95% of this  group  had  equipment  worth  less  than  ₦20,000.  The  incidence,  gap  and  severity  of  poverty decreased with higher naira values of agricultural equipment. As high as 95.6% of the respondents had less than ₦99,999 in livestock value. 1.5% owned between ₦100,000-₦199,999 while 2.9% owned

₦200,000 and above worth in value. The incidence, gap and severity of poverty were least among respondents  with  between  ₦100,000  and  ₦200,000  worth  of  livestock.  Social  capital  indicators selected included community participation, trust and density of membership of local level associations. Respondents who participated in community programmes had lower incidence,  gap and severity of poverty.  Respondents  who do not trust people had higher  incidence,  gap and severity of poverty. Those that did not belong to any association  had the  highest  incidence  of poverty.The  impact of owning  agricultural  equipment,  land  and   livestock   increased  incomes  of  such  households  by

₦16,969.35,  ₦9,  607.74  and  ₦3,  677.44,  respectively.  Hence,  the impact  of  owning  agricultural equipment, land and livestock reduced poverty incidence by 65%, 58% and 33%, respectively.  Also the impact  of participating  in community  programmes,  trusting  group  members  and belonging  to associations  increased  incomes  of such households  by ₦11,  793.49,  ₦4, 015.82  and ₦12,415.75, respectively. Hence, the impact of participating in community programmes, trusting other people and being  members  of  local  level  associations,  reduced  poverty  incidence  by  42%,  100%  and  58%, respectively. The study recommends opening up virile credit lines and procurement modalities that can empower the households to acquire agricultural equipment; to revisit the controversial land use act of

1978 with a view to eliminating all bottle necks that impede land acquisition by the farm households. The study also recommends strong reawakening of the farmers’ cooperative movement as well as the encouragement of farmers to join other local level associations.

CHAPTER ONE

1.0       Introduction

1.1       Background Information

The rate of poverty incidence in Nigeria in the past three decades has been a major concern  for policy  makers.  National  Bureau  of Statistics,  NBS  (2005)  recorded  that the incidence of poverty in Nigeria increased sharply between 1980 (28.1%) and 1985 (46.3%) and although there was a slight decrease in poverty between 1985 and 1992 (42.7%), poverty incidence  increased  to 65.6%  in 1996.Poverty  incidence  in Nigeria  stood  at  70%;  2007 estimate according to CIA (2011). Unfortunately, these numbers are getting worse. Between

1993 and 2003, the share of the population living in extreme poverty (US$1/day income) rose from 59 percent to 71 percent, and the share living in moderate poverty (US$2/day income) rose from 85 percent to 92 percent (WDI 2007). A worrisome  dimension is  the fact that poverty  is  disproportionately  concentrated  among  households  whose  primary  livelihood depends  on  agricultural  activities.  Besides  the  fact  that  there  have  been  some  level  of agricultural  growth  of 6.5% between  2002-2006  in Nigeria  and then 40.84%  of GDP in

2010(NBS, 2011), the problem of poverty among farm families still persists (WDI, 2007).

World Bank (2008) recorded that Nigeria`s rural space is home to 53% of the nation’s population  and  also  home  to more  than  70%  of  the  nation`s  poor.  Notwithstanding  the increasing rate of poverty among farm households, the Nigeria agricultural policy focus of food  self-sufficiency  is  still  couched  mainly  in  terms  of  increasing  physical  output  of domestically produced commodities, neglecting the issue of income of farm households, thus

making the agricultural policy, commodity centered instead of people centered  (Idachaba,

2006).

One of the effective ways through which agricultural income of farm households can be improved  is by broadening  their household  physical  asset base. Chaudhry,  Malik and Hassan  (2009)  had  posited  that  physical  assets  contribute  significantly   to  per  capita income.Escobal  and  Torero  (2005)  observed  that  complementarities  between  social  and physical  assets  and  between  private  and  public  assets  may  be  responsible  for  different patterns of income growth. Physical assets are commonly  portrayed as the most important determinant of income and investment strategies, and it has been argued that a more equitable distribution  of assets could contribute to poverty  alleviation (Rahman and Westley 2001). Physical  assets  help  to increase  opportunities  to be  more  productive  or to obtain  credit facilities and even to serve as safety nets. Diversity in asset choice is important in order to allow households to manage risks in any one period. In fact any household that lacks access to physical assets and other productive resources is unlikely to survive any negative shock and as a survival  strategy  will  adapt  risk averse  production  strategies  (Aryeetey,  2004). Moreover, the distribution of assets will also affect the rate of returns to investments, thus reinforcing  the  tendency  towards  income  inequality  (Walle  and  Gunewardena,  2001). Unequal distribution of assets affects the equal distribution of opportunities for building both physical and human capital in the future (Deininger and Squire, 1998; Deininger and Olinto,

2000).

In general, the distribution of assets is the key determinant of income  distribution (Alesina and Rodrik, 1994). For example, Finan, Sadoulet and de-Janvry, (2002) found out that for small landholders, an additional hectare of land increases welfare on average by 1.3 times the earnings of an agricultural worker. In fact the failure of many poverty reduction interventions has been because they ignored the  great  diversity and heterogeneity of asset portfolio across households (Finan, Sadoulet and de-Janvry, 2002).

Farm  householdsown   anduse  a  variety  of  assets  for  their  various   agricultural production  activities.  The  asset  portfolio  of  the  farmer  may  include   livestock,  farm equipment,  buildings, farm lands (hectares of cropped land), net  savings, net remittances, consumer  durables,  non-real  estate  assets  and  social  capital.  Aryeetey  and  Udry  (1998) constructed  four  simple  asset  categories:  house  (which  is  the  value  of  the  house  plus consumer durables), farm (the value of livestock, farm equipment, and other lands), non-farm (the value of assets of the non-farm  enterprise),  and finance (the value of cash balances, financial savings, shares, net remittance assets). Moser (2007) defined physical assets as the

stock   of  plant,   equipment,   infrastructure   and  other   productive   resources   owned   by individuals, the business sector or the entire country. This study consider physical assets as those productive  assets of the farm household  that includes  the value of  livestock,  farm equipment  and  other  lands  owned  by the  household.  However,  human  capital,  financial assets, house and its content are excluded from this definition. The physical assets considered in  this  study  include  land,  more  importantly  because  it  is  regarded  in  most  developing countries as the main physical asset of farm households (Reardon and Vosti, 1995; Pablo and Jose Maria, 2009), it is the basis of agricultural production for both home consumption and sales. Land is also possible collateral for loans, gives security towards shocks as a store of wealth, and is a place for housing. (World Bank 1999; Freeman et al. 2004; Agudelo et al.

2003; De Janvry and Sadoulet 2000.); livestock, because it contributes 40% of the  global value  of  agricultural  outputs  and  supports  the  livelihood  of  700  million  poor  farmers (Spore,2011);  and agricultural equipment and machinery.

Social  capital  represents  the ability of households  to secure  benefits  by virtue  of membership of social networks or other social structures (Portes, 1998). The social capital of a society  includes  the institutions,  the relationships,  the attitudes  and values  that govern interactions among people and contribute to economic and social development (Grootaert and Bastelear, 2002). Social capital as an asset has gained significant recognition in determining economic  and  welfare  outcomes  at  the  household  level  which  cannot  be  explained  by differences in traditional production inputs such as labour, land, human and physical capital (Grootaert, 1999). Furthermore,  Narayan and Pritchett, 1997; Grootaert, 1999 showed that social capital had greater influence on economic outcome compared with human capital and other forms of capital.

Social capital complements  human and physical capital in order to realize the  full benefits of any development programme (Okunmadewa et al, 2005). Studies in Nigeria have shown  that  the  poor  derive  more  benefits  from  their  membership  of  local  associations compared with publicly instituted organizations (World Bank, 1996;  Olayemi et al, 1999; Okunmadewa, 1998; and World Bank/DFID, 2000). World Bank (1999) found out that the poor in Nigeria turn to local community based organizations (CBOs) as the main safety net for their well being. Prominent among these social safety nets are religious groups, traditional leadership,  educational  institutions,  women’s  group  and  traditional  financial  institutions among others.

Poverty  in  this  study  was  based  on  household  per  capita  expenditure  instead  on income. The purpose of doing this is because of some reasons. First respondents may find it

more difficult to recall all their income as many income sources may be informal or transient; this is less likely to be a problem with expenditure, the bulk of which may be more frequent and regular. Secondly, respondents may have an incentive to understate or not declare certain sources  of income  if they  fear  that  the information  may  be  used  for taxation  purposes. Thirdly, respondents may have difficulty in calculating profits from household enterprises for which no formal accounts exist, and may simply not  record them. Above all, the poverty indices in Nigeria are calculated based on household expenditure per capita.

1.2       Problem Statement

Assets  and  social  capital  are  commonly  seen  as  major  determinants  of   rural households’ poverty in developing countries (Reardon and Vosti 1995; Freeman et al. 2004; Carter and Barrett 2006; Grootaert and Bastelear, 2002; Okunmadewa, Yusuf and Omonona,

2007). Investments into assets and social capital have been believed to raise households out of  poverty  through  participating  in  an  upward  spiral  of  capital  accumulation  and  rising welfare levels. Despite these perceived importance of assets and social capital networks in enhancing income of farm households, the mechanism through which they impact on poverty is  not  yet  known  in  Nigeria.  This  yawning  knowledge  gap  has  continued  to  persist, notwithstanding the deepening poverty especially among farm households in Nigeria. However, the actual dynamics of how these assets impact on farm household poverty is rarely studied (Penttinen, 2008). Olaniyan, (2003) also observed that the contribution of household physical asset endowments to poverty has received insufficient attention despite the fact that they are invaluable to poverty outcomes.

Though, a number of studies treated household poverty and social capital separately in Nigeria (Omonona 2001; Okunmadewa 2001), studies on empirically establishing the link between social capital and household welfare are scanty in Nigeria with the notable exception of Okunmadewa,et  al. (2005),  which focused  on social  capital  and poverty.  In all these studies,  the link between  the socioeconomic  attributes  of farm households,  their physical asset and social capital endowment and  their effect on poverty have not been established empirically in Nigeria.

The asset choices which farm households make in Nigeria have not been examined nor valued. A diverse portfolio of assets is not only critical for households  to cope with unexpected shocks, but can free access to a range of consumption  smoothing options and mechanisms that are vital for them to maximize utility over time. Diversity in asset choice is also important in order to allow households to manage risk in any one period. These attributes are  especially  important  in  developing  countries  where  the  lack  of  sufficient  access  to

consumption smoothing mechanisms can perpetuate and worsen poverty (Aryeetey 2004). A household that is constrained in its access to physical assets may not be able  to survive a negative  shock.  In practice,  many households  do survive,  but at the cost  of adopting an extremely risk averse production  strategy.  In many rural areas, for  example, this strategy might be reflected in the sacrifice of expected return as farmers choose safer, lower yielding enterprises. This perpetuates the vicious cycle of poverty and hampers economic growth as the credit and/or other constraints push farmers to a sub-optimal path.

To comprehensively  fight poverty and enhance the incomes of farm households  in Nigeria, there is need to focus on their physical assets and social capital portfolios through which the income is generated. Hence the questions are: how do asset  holdings including social capital networks differ among farm households of different poverty level? What is the connection  between  household  socioeconomic  attributes,  diversity  of  physical  assets  and social capital endowment in determining poverty in Nigeria? To what extent does assets and social capital contribute to poverty reduction? It is expected that households that have a lot of physical and social capital assets are unlikely to be poor. They will have access to productive resources, especially from their groups, more than those that do not have. Also they will be less risk averse in the production and can easily cope with sudden shocks and hence be less poor.

1.3       Objectives of the Study

The broad objective of this study is to determine the impact of physical and social capital asset holdings on poverty among farm households in Nigeria, while the specific objectives are to:

a.   describe the human capital assets of the farm households;

b.   ascertain the size and composition of  physical asset  holdings of farm households in

Nigeria;

c.   ascertain the social capital dimensions engaged by farm households in Nigeria;

d.   determine the poverty incidence, gap and severity of farm households according to their physical and social capital asset holdings;

e.   estimate the impact of these asset holdings on farm household  poverty in Nigeria and

.

1.4       Research Hypotheses

This study is guided by the following hypotheses:

a.   There are no significant differences in poverty between households with physical asset endowments and those without.

b.   There are no significant differences in poverty between households with social capital proxies and those without.

1.5       Justification

Unraveling  the contributions  of farm household  physical  assets and social  capital endowments  to  poverty  reduction  is  very  imperative  as  analysts  and  policy  makers  are seeking  alternative  mechanisms  through  which the biting poverty  especially among farm households can be reduced. Since asset holdings define a  household’s capability to pursue different livelihood activities that generate income, sustainable poverty reduction needs to be built on a solid understanding of household asset positions and the contexts where assets are used as the basis for identifying livelihood strategies that lead to pathways out of poverty (Burke, Jayne, Freeman and  Kristjanson,  2007). Understanding  the dynamics of assets in household  economics  would add to the knowledge  on household  income  and investment strategies and perhaps even suggest pathways out of poverty.

This study is also motivated by the need to expand research on social capital and its effects on poverty. Studies of social capital and its economic payoffs have tended to focus more on industrialized countries. Most empirical studies on the impact of social capital in Nigeria are set in the context of specific projects or in a limited geographical areas like the work of Olomola, (2002) who examined the effects of social capital on the performance of informal finance groups in the rural areas of western Nigeria and Yusuf, (2008) whose work dwelt on social capital and household welfare in Kwara state, Nigeria. The use of national- level data set in Nigeria to quantify the impact of social capital on poverty seems to be quite rare. These studies have also rarely quantified the impact in a formal analysis, i.e. controlling for other factors which affect outcomes. This  study will attempt to quantify the impact of social capital on household poverty at the national level, while controlling for other factors which affect poverty.

According  to Okunmadewa,  Yusuf  and Omonona,  (2005),  there  is still a  general dearth of study on estimating the impact of demographic, human capital, occupational, and physical  capital  on poverty  among  Nigerian  households  not to talk  of the social  capital phenomenon. This is evidenced from the gaps in knowledge that this study intends to fill. First, given the huge geographical and cultural diversity of the country and the fact that the

country  remains  the  largest  in Africa  in terms  of population,  a nationwide  study  which incorporates all the diversity of the country, is justified. Second, the development of social capital as an overarching goal of the latest attempt at poverty reduction is premised on the results of qualitative studies. Since there are more robust quantitative techniques through the inclusion  of social  capital  factors  in the determinants  of  poverty  and welfare,  it will  be necessary to apply this technique to the Nigerian situation. This is more so within the context of the findings by Narayan and Pritchett (1997) and Grootaert (1999).

This study is further justified by the fact that there are few studies on the impact of household physical asset holdings on poverty in Nigeria despite Grootaert (1997) observation that these assets serve as sources of opportunities (or constraints) to getting out of poverty by different households  by providing opportunities  to be more  productive or to obtain credit facilities or even to serve as safety nets. Most policy and research interests regarding rural credit  markets  revolve  around  the  perception  that  poor  rural  households  in  developing countries  lack  adequate  access  to  credit,  which  is  believed  to  have  significant  negative consequences  on  various  aggregate  and  household-level  outcomes,  including  technology adoption,  agricultural  productivity,  food security,  nutrition,  health,  and overall  household welfare (Diagne, Zeller and Sharma,2000). The outcome of this study will therefore serve a useful purpose in formulating national policies aimed at tackling the scourge of poverty and enhancing human welfare among farm households in Nigeria.

1.6:     Limitations of the study The study was aimed at examining the impact of physical and social capital  asset endowment   on   poverty   among   farm   households   in   Nigeria.   Getting   a   nationally representative data was a herculean task as to possibly venture into trend analysis. Moreover, the 2008 round of the Nigeria Living Standard Survey has not been able to see the light of the day as at the time of completing this study leading to the usage of the most recent data. It was the ambition to examine transitory and chronic poverty but for dearth of data.  This highlights the need to build up comprehensive and up to date household database

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