FARM-LEVEL ANALYSIS OF OFF-FARM INCOME AND FARM CAPITAL ACCUMULATION AMONG SMALL-SCALE FARMERS IN NORTH-CENTRAL NIGERIA

Abstract

The  study  analysed  off-farm  income  and  farm  capital  accumulation  among  small-scale farmers at farm level in North Central Nigeria. Multistage sampling technique was used to select 360 respondents, comprising participants and non-participants in off-farm work. The participants were disaggregated  into three main  typology namely, agricultural wage, non- agricultural  wage, and self-employments.  Data for the study were obtained  from primary source with the aid of standard questionnaire and analysed using descriptive and inferential statistics. Self-employment was the dominant (42.78%) off-farm work. Full-time participants were mainly (38.50%) in non-agricultural wage employment. Participants with off-farm work experience of 14–19 years were mostly (55.20%) in self-employment,  while 61.50% of the farmers   with  off-farm   work   experience   of  26–33   years   were   in  agricultural   wage employment. Off-farm income constituted 50.28% of total household income. The strongest and weakest predictors of enterprise diversification  were funds for farm  investment (0.65) and crop failure (0.36), respectively.  The mean entropy of  diversification  was 0.67. Farm income (p < 0.01, t = –10.237) and off-farm income  (p  < 0.01, t = 2.536) significantly affected market labour supply. Self-employed participants had the highest average off-farm income (N266,680.78). Farm capital differed significantly (p < 0.05) among off-farm work typology.  Farm  capital  was  unequally  distributed  among  the  respondents  (G  =  0.56). Causality ran from farm capital to off-farm income. Participants had significantly (p < 0.01) less  total  farm   liabilities,  debt-asset-ratio,   and  loan  for  farm  production   than  non- participants. Participants significantly (p < 0.01) incurred more yam production costs and total variable costs than non-participants. Participants had significantly (p < 0.01) higher average technical efficiency estimates in yam and cowpea enterprises but less average profit efficiency  estimates  than non-participants.  It was concluded  that small-scale  farmers had average reliance on off-farm income for the purposes of generating funds for farm investment and increasing farm capital. Although, self-employment  generated  higher off-farm income, farm capital was highest among farmers in agricultural wage  employment.  Thus, off-farm income  was  diverted  to  non-farm  enterprises,  signaling  a  gradual  drift  from  core  farm production. It was recommended that small-scale farm households should increase off-farm income’s share invested in farming so as to raise production level, farm capital and obtain higher  returns  so  that  they  could  take  full  part  in  agribusiness;  that  IFAD  and  other stakeholders in rural development should  encourage farmers in non-agricultural  and self- employments to re-invest off-farm income in farming; and the Federal Government and IFAD should train farmers on the  management of additional income from off-farm work. These measures would facilitate the development of the agribusiness sector and forestall dual farm structure from adversely affecting food production by small-scale farmers.

CHAPTER ONE

INTRODUCTION

1.1      Background of the Study

In sub-Saharan Africa, agriculture occupied a prominent position in national economies as the sector served as a key driver of growth, employment generation, wealth creation, food production, raw material supply, and poverty reduction (Ekpo & Olaniyi, 1995; Diaz-Bonilla

& Gulati, 2003; Lawanson,  2005; Wankoye,  2008). Ajakaiye  (1993),  National Bureau  of Statistics (2007), and Matthew (2008) attested to the potentials and indispensable  roles of agriculture  in Nigeria’s economy.   The recognition of the role of agriculture  in Nigeria’s economy informed the decisions of the Federal Government and donor and foreign agencies to marshal numerous interventions to the sector (Oyeyinka, Arowolo & Ayinde, 2012).

Some of the interventions, which aimed at mitigating financial constraints faced by farmers, included  Family Economic  Advancement  Programme,  Nigerian Agricultural  Credit, Rural and  Development  Bank  now  called  Bank  of  Agriculture,  Agricultural  Credit  Guarantee Scheme Fund, Community Banks, Microfinance institutions, National Special Programme for Food  Security and Fadama  Development  Programmes  (Nweze,  1995;  Ogbanje,  Okwu  & Saror,  2010).  These  efforts  are  justifiable  given  the  importance  of  agriculture  to  both developed and developing countries of the world. For instance, it has been observed that the rapid  growth  of the  newly  industrialised  economies  of the  Asian continent  was  directly associated with substantial growth of the agricultural sector (Kay, 2001). Wankoye (2008) was of the view that commercial agriculture is the most effective and sustainable catalyst that would lead to sustainable industrialisation. It follows that the need to increase farm income and agricultural productivity among small-scale farmers is sine qua non, if the farmers must maintain their national, though inadequately recognised role of feeding the nation.

In Nigeria’s move towards agricultural renaissance, it is important to note that commercial farms are profitable only if they generate sufficient income (on and off-farm) and accumulate adequate capital for possible re-investment. In this direction, it is imperative for small-scale farmers to embrace farm diversification strategies as measures  to curb declining farm and household  incomes  and  to  insure  against   agricultural  production  and  marketing  risks (Reardon, 1997; Amit & Livnat, 1988; Kijima, Matsumoto & Yamano, 2006; Matsumoto et al., 2006; Hazell, Syed, Zupi & Miyazako, 2011).

Off-farm  income  is that portion of household  income  which is obtained  off the farm.  It includes non-farm wages and salaries, pensions, trading and interest on income  earned by farm  families  (Matthews,  2004).  Off-farm   income  doubles  as  risk   minimisation  and household income stabilisation strategies. In the United States, for instance, off-farm income accounted for over 90 percent of farm operators’ household  income (Sommer et al., 1997; Babcock, Hart, Adams & Westhoff, 2000; Briggeman, 2011). Ahearn and Lee (1991), Perry and  Hoppe  (1993),  Blank,  Erickson,  Nehring  &  Hallahan  (2009)  and  Briggeman  (2011) asserted that several farms in the United  States  of America could not boast of favourable leverage  ratio  without  off-farm  income.  In  a  developing  country  like  Nigeria  where agriculture  has been relegated,  and further worsened  by flagrant diversion  of agricultural intervention funds to unintended beneficiaries (Idachaba, 1993), off-farm activities deserve no less attention.  Besides, Babatunde (2008) has shown that off-farm income supplements and boosts farm and total household incomes.

Off-farm work refers to activities from which farmers earn income apart from their own farm. In  Mexico,  De  Janvry  and  Sadoulet  (2001)  clearly  separated  farmers  into  those  who participated  in off-farm work and those who did not. According to  Babatunde,  Olagunju, Fakayode and Adejobi (2010),  the scenario,  however,  is  different  in rural Nigeria,  where farmers engaged in several activities at the same time in a way that decisions to participate are  not  mutually  exclusive.  Off-farm  engagement  is  generally  disaggregated  into  three components.  These are agricultural  wage employment  (AWE)  involving  labour  supply to other farms, non-agricultural wage employment (NAWE) including both formal and informal non-farm activities, and self-employment  (SE) such as own businesses.  This typology has been used by Babatunde et al. (2010) and Ibekwe et al. (2010).

Myyra, Pietola and Heikkila (2011) affirmed that besides generating annual income, a farm family might have a goal to accumulate wealth through capital gains from off-farm activities. This is especially relevant for the about 900 million extremely poor people who lived in rural areas of developing countries. But, with little income or collateral, poor farmers were hardly able to obtain loans from banks and other formal financial  institutions  (Ochi & Nnanna, 2007;  Asogwa,  Umeh & Ater,  2007).  Access to rural financial  services  is worse  among women (Audu, Otitolaiye  & Edoka, 2009) even though, women often had the  best credit ratings and were more actively involved in agricultural production  (International Fund for Agricultural Development (IFAD), 2000, 2003, 2004; Adepoju, Umar & Agun, 2006; Audu et al., 2009). The most effective way out of this contraption, according to IFAD (2004), is that the small-scale farmers need to be able to borrow, invest and save, and to protect their families  against  risk.  According  to  Mellor  (1962),  Kibara  (2007)  and  Petrick  and  Kloss (2012, rural financial capital improved  agricultural productivity,  food security and poverty profile. Osaka (2006) and Ogbanje (2010) noted that capital, including cash and other man- made farm assets that are required to carry out production, is usually accumulated through savings and investment.

Since formal credit facilities were unreliable, farmers have resorted to alternative measures to raise capital for farm investment. The two major alternative sources of farm capital for small- scale  farmers  were  the  numerous  local  savings’  schemes  and  involvement  in  off-farm activities (Adam & Agba, 2006; Alade, 2006; Ibekwe et al., 2010). In some contexts, rural off-farm activities are important sources of local economic growth (e.g. tourism, mining, and timber processing).  Off-farm sector is of importance  to the rural economy  because of its production  linkages  and  employment   effects,  while  the  income  it   provided  to  rural households  could  represent  a  substantial  and  sometimes  growing  share  of  farm  capital (Alimba, 1995; Okorji, 1995; Okoye, 1995; Davis, 2003; Zeller,  Schrieder,  von Braun & Heidhues, 1997).

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